The latest hot mergers and acquisitions out of the health care sector is Botox maker Allergan (NYSE: AGN) reportedly approaching Salix Pharmaceuticals (NasdaqGS: SLXP).
California-based Allergan is trying stave off a $53 billion hostile bid from Valeant Pharmaceuticals (NYSE: VRX). In April, it was reported that hedge fund manager Bill Ackman took a stake of 9.7% in Allergan and is teaming up with Valeant to make a move on the company. [Ackman Might Like These Pharma ETFs]
Sources could not confirm where Allergan’s talks with Salix stand, but those sources did say the former could strike a deal with Salix or another company as soon as September, the Wall Street Journal reported Tuesday.
Assuming Allergan does make an offer for Salix and the takeover premium is to investors’ liking, several exchange traded funds could benefit in significant fashion.
Start with the $885.9 million SPDR Pharmaceuticals ETF (NYSEArca: XPH). XPH is no stranger to benefiting from health care mergers and acquisitions news. The ETF surged earlier this year whenActavis (NYSE: ACT), currently XPH’s tenth-largest holding, acquired Forest Laboratories (NYSE: FRX) for $25 billion. [Forest Deal Fantastic for Pharma ETFs]
Salix is XPH’s fourth-largest holding, occupying a weight of 4.1% as of Aug. 18. In addition to holding Salix, XPH is home to another company that is often mentioned as a takeover target: Jazz Pharmaceuticals (NasdaqGS: JAZZ). Jazz is XPH’s sixth-largest holding at a weight of almost 3.6%.
The PowerShares DWA Healthcare Momentum Portfolio (NYSEArca: PTH) is another of the small number of ETFs that feature Salix among their top-10 holdings. PTH is one of 10 PowerShares ETFs that in February transitioned to Dorsey Wright indices, which focus on identifying stocks with impressive relative strength.
PTH’s momentum focus has proven effective as the ETF has surged 8.6% over the past three months. The $78 million fund has an almost 3.6% weight to Salix. [Index Swap Already Helping This ETF]
That is about the same weigh the PowerShares Dynamic Pharmaceuticals Portfolio (NYSEArca: PJP) allocates to the stock. Of course a takeover of Salix by Allergan, or any other firm, would boost PJP, but the ETF has not needed much help delivering for investors this year. PJP is up nearly 17% and has added $96.5 million in new assets.
SPDR Pharmaceuticals ETF