Why has the CSL share price dropped?
A deal with a Switzerland pharmaceutical company has driven CSL to its lowest levels since May.
Shares in biotech giant CSL (ASX: CSL) have shot up to the top of the most traded stock list on the ASX after resuming trading after 2 days.
The stock was also the worst performer, dropping 8.3% from its previous close to $872.20.
Why are CSL shares trading lower?
CSL announced it has completed a $6.3 billion equity raising from institutional investors, the proceeds of which will be used to part-fund its mammoth $16.4 billion takeover of Switzerland-based Vifor Pharma (SWX: VIFN).
The ASX-listed firm issued shares to the investors at $273 each, representing an 8.2% discount to its last closing price of $297.27.
It will now proceed with a $750 million share purchase plan for retail investors on 21 December, with these shares to be issued at the same placement price or a 2% discount to the 5-day volume weighted average price, whichever is lower.
CSL will issue 23.1 million new shares under the placement, and despite its size the equity raising represents just about 5% of the CSL shares on issue.
"We appreciate the support we received from the investment community, including existing and new shareholders, for what is the largest ever primary equity raise in Australia," CSL chief executive Paul Perreault said in a statement to the ASX.
As expected, CSL shares resumed trading in line with the placement price for the new investors, whose shares rank equally with those of existing shareholders.
But that does not mean a permanent decline in Australia's priciest stock. Analysts are betting that the Vifor Pharma deal will be transformational for CSL in the medium term.
Vifor is a global leader in iron deficiency therapies and also focuses on nephrology, cardiology and rare diseases.
That would help diversify the product portfolio of CSL, which is currently the world's largest maker of blood plasma treatments and gets more than three-fourths of its revenue from the segment.
Given those impressive grounds for the deal, analysts at brokerage Jefferies lifted their price target on the CSL stock to $343.70 from $338 while maintaining a "Buy" rating. Citi analysts raised their price target to $340 from $325 and upgraded the rating to "Buy" from "Neutral".
CSL says the merger is expected to be immediately earnings per share accretive and analysts at Citi tend to agree. "We calculate the acquisition to be ~9% accretive to NPATA per share (NPAT before acquisition-related amortization) – a proxy for cash flow," they said in a note after the announcement of the deal.
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