At this point, the precise structure of the deal as well as the size and scope of any spin-off dividend that current Theravance shareholders stand to earn remain unclear however Theravance’s management team has indicated that the split will occur sometime in late 2013 or early 2014. Investors who wish to position themselves in front of this deal would do well to determine their course of action by then.
How Investors Might Profit
Given the divergent risk characteristics of the split’s two components, investors may have multiple means of profiting from this deal. Investors who might naturally be attracted to a promising company like Theravance Inc (NASDAQ:THRX) may wish to establish a long position in the newly independent partnership. By contrast, those who have no problem with the idea of investing in risky pharmaceutical start-ups may find greater opportunity in shares of the R&D company. Although this second component could take longer to pan out or simply never produce investment-worthy returns, it might also offer tremendous value in the out years.
It should be noted that Theravance’s shares initially jumped by more than 13 percent on the news that it would split into two companies. This suggests that the firm’s current investors feel strongly about separating its more risky components from its Glaxo operation. Investors who are inclined to follow the smart money may be better served by a position in the more conservative option.
In sum, this deal presents an exciting and fairly unusual opportunity for Theravance and its shareholders. With regulatory approval imminent for at least one of its drugs, the partnership with GlaxoSmithKline looks to be the deal’s safer component. However, the R&D division may produce eye-popping long-term gains. In either case, investors would do well to watch Theravance’s next moves as closely as possible.
The article Theravance Looks to Reward Shareholders by Splitting Into Two Distinct Companies originally appeared on Fool.com and is written by Mike Thiessen.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.