ftc decision, page-59

Sensitivity Tables Reveal Two Sorts of Returns - Assuming the Talecris deal is blocked in the USA, we calculate the EPS uplift, and hence benefit to shareholders who buy at ~$32. Benefit comes from two components: capital reduction of ~10% or 61.5m shares, and an earnings uplift which includes positive FX gains offset by deal costs and a break fee. The net uplift in EPS in FY10e is ~9%. Applying a 40% PE premium to market (10% below its five year average) to new FY10e EPS would result in a $47 shareprice.
Total Return to Shareholder Depends on Purchase Price - If a shareholder participated in the capital raising at $36.75, resulting in the issue of 51.5m shares, then they would receive the potential operational EPS benefit only. A purchaser acquiring the shares nearly $5 lower at current levels of ~$32 receives both the transaction benefit and any capital reduction benefit. EPS uplift in 2010 from a Talecris deal of ~10% (CSL guidance) is similar to that of Citi's calculation of the impact of a share buyback plus lift in operational earnings from FX profit/interest ie ~9%.

Odds of Talecris Acquisition Proceeding - While the bar has been raised for CSL given only two of the four commissioners on the FTC can apparently vote, only one has to vote yes for the deal to proceed. The thorny issue remains market share, and what can be divested without substantial erosion of synergies estimated by CSL management to be USD$225m pa.

Deal Far From Over - There are many possible outcomes to the current discussions. As stated in our flash note of yesterday, we anticipate some form of divestment would be required but for CSL the price paid and the synergies will still need to line up which may mean renegotiation with the sellers as well as the regulatory authorities.

Regards,