Gilead Borrows $10 Billion, Spurring Acquisition Speculation

September 10, 2015
By Mark Terry, BioSpace.com Breaking News Staff

Foster City, Calif.-based Gilead Sciences, Inc. announced Wednesday that it filed to borrow $10 billion in an underwritten, registered public offering. The offering will have six tranches that mature between 2018 and 2046.

The offering is planned to close Sept. 14, 2015 and are rated A- by Standard & Poor’s and A3 by Moody’s.

Although Gilead’s filings indicate the offering will be used for “general corporate purposes,” many analysts suspect — or hope — the money will be used to fund one or several acquisitions. In its June 30 financial filing, Gilead indicated it had $14.5 billion in cash and equivalents, which along with another $10 billion would give it a lot of buying power. Charley Grant, writing for The Wall Street Journal, however, said, “Investors should be careful what they wish for: while Gilead’s stock has lagged because it stayed out of the deal making frenzy, that may very well end up being a long-term positive for shareholders.”

Analyst rating for Gilead have been a bit mixed. Jeffries gave it a “hold” rating with a price target of $115. Thomson Reuters analysts gave Gilead a consensus price target of $125.39 and a 52-week range of $85.95 to $123.37.

At least part of the mixed reviews of Gilead are related to this year’s huge growth in the hepatitis market, which many analysts feel will slow down or even drop in 2016. The company is also in the middle of a large buyback plan. A press release at that time said, “The Board of Directors also approved the repurchase of up to an additional $15 billion of the company’s common stock. This new program is in addition to the currently authorized three-year $5 billion repurchase program (authorized in May 2014). As of Dec. 31, 2014, approximately $3 billion remained in the May 2014 program. The new program will expire five years after the completion of the May 2014 program.”

Which would suggest that Gilead is attempting to pay down its debt … or possibly buy something. Jon Ogg, writing for 24/7 Wall Street, points out that although Gilead already has plenty of long-term debt, “there is only about $1.7 billion in debt due between now and the end of 2020.”

Although the most recent filing regarding the debt offerings says the company will use the proceed for general corporate purposes, it goes on to say those may include “the repayment of debt, working capital, payment of dividends and the repurchase of our outstanding common stock pursuant to our authorized share repurchase program.” Acquisitions aren’t mentioned, but analysts are noting it doesn’t exclude them either.

Writing Tuesday Ken McGaha analyzed Gilead’s long-term strength, nothing that a recent downturn in the company’s stock price seems to be more a reflection of the overall market rather than anything particular related to the company. “It is common practice for investors to sell everything that isn’t nailed down when fear hits the market,” McGaha wrote. “That appears to be the case with Gilead right now. As a value based investor, I want to establish as best I can that the selling is based on general negative sentiment toward the market and not some fundamental change in the prospects for the business I am evaluating. In the case of Gilead, I see the same negative arguments I always see related to the business but no sign of permanent impairment.”

is currently trading for $103.82 per share. The last year has been moderately volatile, with a recent drop that seems to be recovering at least a little bit. Shares traded on Oct. 30, 2014 for $114.22, dropped to $89.95 on Dec. 23, and jumped to $122.21 on July 23, 2015, then dropped suddenly to $100.66 on Aug. 24. As McGaha points out, though, looking at the company’s longer-term stock history, it has been on a very steady rise for at least the last five years. On Sept. 9, 2011, shares traded for $18.91 per share.