Q&A Time: Omnicare’s Bid for PharMerica and Oil Companies

 

Written Commentary:

Question:

What do you think of Omnicare, Inc.’s (NYSE: OCR) bid for PharMerica Corp. (NYSE: PMC)?

Answer:

Both companies are providers of pharmaceuticals and related pharmacy and ancillary services to long-term healthcare institutions, such as, skilled nursing facilities, assisted living facilities, retirement centers, independent living communities, hospitals, hospice, and other healthcare settings. Omnicare is looking to build their presence in Florida, so they have offered to buy PharMerica at $15 per share. The offer was denied, with PharMerica stating their shareholders wanted more. Recent news shows that the Federal Trade Commission is looking into the buyout to determine if it would make sense for the two companies to join forces. It looks as if it may not happen as Omnicare would then control as much as 60% of the market, which could be critical in an industry with government support.

PharMerica’s shareholders saw a bounce of about 20% on its stock at the time of the announcement. The premium was around 27%, but has since traded down. When there are indications a deal might fall apart and the premium has been recognized in the stock price, we generally choose to sell the stock. We’ve seen this with our past holdings in Diebold Inc. (NYSE: DBD), among others.

Question:

I agree with your thoughts that oil prices may rise. Will this be good for the oil companies? Should I increase my holdings?

Answer:

The price of oil doesn’t immediately affect oil companies, or the industry in general. Higher prices will generally help explorers and companies who drill, more than a marketer or refiner of oil products. If you believe that the price of oil will rise, you may consider companies like Exxon Mobil Corp. (NYSE: XOM) or Chevron Corp (NYSE: CVX).

Apache Corp. (NYSE: APA) may also fare well as APA does not have the exposure to marketing and refining that Exxon or Chevron do. Oil services companies could also stand to do well with rising oil prices. You might wish to consider the iShares Dow Jones U.S. Oil Equipment ETF (NYSE: IEZ). With tensions in the Middle East, we feel an increase in energy costs is likely; therefore, we have recently increased our energy holdings by increasing our position in the oil services SPDR.

At Henssler Financial we believe you should Live Ready. If you have a question you would like answered, experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or e-mail at experts@henssler.com.

Disclosures:

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