A Potential Bidding War for Avadel Pharmaceuticals – The Special Situations Report Episode #45

Episode Summary

Executive Summary: Episode 45 of the Special Situations Report covered a busy week in event-driven investing: Clearwater Analytics may be heading to a sale, Surmodics’ merger spread collapsed after an FTC setback, and Avidel received a higher competing bid from Lundbeck. The hosts also discussed Merck’s blockbuster Sidara Therapeutics deal, unusual option pricing in the Pfizer-Metsera transaction, sizable buybacks at Instacart and Infiniti Natural Resources, insider buying at Blend Labs, and activist pressure on Bill.com, Pacira Biosciences, and Calavo Growers.

Main Topics: M&A pipeline and merger arbitrage (Priority: 5/5): The episode opened with pending and completed deals, including Clearwater Analytics exploring a sale, GTCR’s Surmodics acquisition surviving an FTC challenge, and the continued feast for merger-arbitrage investors. Avidel bidding war and CVR analysis (Priority: 5/5): The hosts revisited Avidel’s rise from insider-buying idea to acquisition target, then detailed Lundbeck’s topping offer versus Alkermes and assessed the relative difficulty of sales-based CVR milestones. Large biotech and healthcare deal activity (Priority: 4/5): Merck’s acquisition of Sidara Therapeutics was highlighted as a massive, high-premium strategic move tied to pipeline replenishment and patent-expiration pressure. Buybacks and capital allocation (Priority: 4/5): Instacart’s $1.5 billion repurchase and Infiniti Natural Resources’ unusually large buyback relative to market cap were framed as signals of confidence, but also as examples of different cash-flow realities. Insider buying as a signal (Priority: 4/5): Brian Sheth’s purchase of Blend Labs stood out as a notable insider transaction because of his background and the company’s depressed valuation and mortgage-cycle exposure. Activist pressure and potential sales processes (Priority: 4/5): The episode discussed ongoing activism at Bill.com and new pressure on Pacira Biosciences and Calavo Growers to run strategic reviews or consider sales.

Key Arguments: Merger arbitrage remained especially attractive because several deals saw spreads tighten dramatically after regulatory or court developments. Avidel’s higher Lundbeck bid may be superior on headline price, but its sales-based CVR appears riskier than the prior regulatory-style contingent payment. Merck’s Sidara acquisition reflects a strategic need to replace revenue ahead of patent expirations, explaining the unusually large premium. Instacart is more mature and profitable than a typical “growth-only” tech company, making buybacks and valuation metrics especially notable. Blend Labs’ insider purchase matters not only because of the dollar amount, but because the buyer is a highly experienced technology investor who appears to buy at a specific price floor. Activists often push companies with strong cash flow but weak valuation toward either operational change, buybacks, or outright sale processes. The hosts repeatedly emphasize that special situations can create mispriced opportunities, but option and CVR mechanics must be checked carefully before trading.

Data Points: Clearwater Analytics stock performance since IPO: -24% - Down since 2021 IPO while exploring a potential sale Clearwater Analytics stock performance year to date: -30% - Illustrates pressure on the company before sale rumors Surmodics deal spread at start of month: up to 63% - Potential profit spread before court ruling Surmodics stock reaction to injunction denial: +50% in one day - Stock jumped after court denied FTC/state request for preliminary injunction Surmodics current deal spread: 3.34% - Post-ruling merger-arbitrage spread Avidel stock decline before first deal announcement: over -50% - Market punished the stock despite drug progress Avidel first acquisition value: $2.1 billion - Alkermes agreement announced in late October Avidel cash consideration in first deal: $18.50 per share - Part of Alkermes transaction Avidel initial CVR: $1.50 per share - Contingent on additional FDA approval scenario Lundbeck competing offer for Avidel: up to $23 per share - Higher topping bid versus Alkermes Lundbeck cash component for Avidel: $21 per share - Base cash offer in rival proposal Lundbeck CVR total: up to $2 per share - Milestones tied to future U.S. sales Lumryz/Lumrise expected 2025 net revenue: $265 million to $275 million - Used to gauge Avidel milestone probability Avidel patient count on Lumryz as of June 30, 2025: about 3,100 patients - Supports discussion of adoption trajectory Metsera final deal price: $65.60 per share - Approved Pfizer acquisition Metsera CVR value: $20.65 per share - Three-milestone contingent value right OCC-adjusted Metsera option deliverable: Non-transferable CBRs excluded - Explained why $70 puts were trading unusually Sidara Therapeutics acquisition value: $9.2 billion - Merck’s second M&A deal of the year Sidara cash consideration: $221.50 per share - Merck acquisition terms Sidara deal premium: 108.98% - Highlighted as unusually large premium Infiniti Natural Resources buyback size: $75 million - Repurchase announced alongside Q3 results Infiniti buyback as % of market cap: more than 42% - Showed unusual scale for a microcap company Infiniti Q3 production growth: 39% - Operational growth cited by management Infiniti natural gas production growth: 70% - Subcomponent of output growth Infiniti Q3 net income: $40 million - Reported in quarterly update Infiniti adjusted EBITDA X: $60 million - Non-GAAP metric discussed critically Infiniti operating cash flow first nine months: $187 million - Showed cash generation before capex Instacart buyback size: $1.5 billion - Repurchase announcement Instacart buyback as % of market cap: 15% - Large relative to equity value Instacart IPO price: $30 per share - September 2023 public listing Instacart share price mentioned: $41 and change - Current trading level at time of episode Instacart Q3 2025 EPS: $0.51 - Beat analyst estimates by $0.01 Instacart revenue growth: 9% to 11% - Growth over each of the last four quarters Instacart gross margin: approaching 75% - Used to compare it with software economics Instacart net margin: above 14% - Supports profitability argument Instacart cash balance: nearly $1.7 billion - Balance sheet strength Instacart forward P/E: less than 20x - Valuation cited as attractive Instacart EV/free cash flow: 10.22 - Presenter’s preferred valuation metric Blend Labs decline since IPO: over -85% - Long-term underperformance since 2021 IPO Blend Labs performance over last year: down 33% - Recent decline despite profitability progress Brian Sheth insider purchase through Haveli: roughly $6.8 million - Notable buy by a prominent tech investor Haveli/Blend buying pattern: around the $3 floor - Observed recurring purchase level Bill.com activist stake by Starboard: 8.5% - Led to board nominations and pressure for change Bill.com activist stake by Elliott: roughly 5% - Added to activist pressure and sale speculation Pacira stake owned by Doma Perpetual: nearly 7% - Largest portfolio position and basis for activism Pacira share of Doma portfolio: nearly 20% - Indicates high conviction Calavo Growers prior bid: $32 per share - Non-binding proposal reviewed in June Calavo buyback earlier in year: $25 million - Repurchase represented about 6% of market cap

Pivotal Quotes: "the adjusted MTSR option deliverable will not include the non-transferable CBRs." — Podcast host quoting the OCC memo: Explained why Metsera $70 put options were priced higher than expected "the CVR is just a free lottery ticket in some sense." — Asif Surya: Commenting on Lundbeck’s added contingent payment in its topping bid for Avidel "This year has been a bonanza for special situations investors, especially the ones that have been focused on the merger arbitrage strategy." — Podcast host: Summary of the year’s unusually rich event-driven opportunities

Implications: Listeners should expect continued opportunities in merger arbitrage, biopharma bidding wars, and activist-driven situations, but must scrutinize CVRs, option deliverables, and cash-flow quality carefully before trading.