New tariff road kills: Acacia, Lumentum and Oclaro

Acacia, Oclaro plunge after U.S. bans sales to China’s ZTE

Lumentum to acquire Oclaro for $1.8B. Stockwinners.com
Oclaro tumbles on tariffs

Shares of several optical networking component providers – including Acacia Communications (ACIA), Oclaro (OCLR) and Lumentum (LITE) – are sliding after the U.S. Department of Commerce reportedly banned U.S. companies from selling components to Chinese telecom equipment maker ZTE Corp. (ZTCOY).

Acacia Comms tumbles, Stockwinners.com
Acacia Comms tumbles, Stockwinners.com

Loop Capital analyst James Kisner previously has noted that China’s ZTE announced it was raising $2.1B to fund the development and deployment of 5G wireless networks, which he read as a positive sign for optical component vendors. Oclaro (OCLR) and Acacia Communications (ACIA) have notable exposure to ZTE, Kisner pointed out, adding that he expected most optical component makers to benefit from 5G deployment in China.

In Monday’s trading following the news of the ZTE sales ban, Acacia shares have fallen over 18%, Oclaro has dropped 7.5% and Lumentum is down 8%.


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Tropicana Entertainment sold for $1.85B

Eldorado Resorts to acquire Tropicana Entertainment in $1.85B transaction 

Tropicana Entertainment sold for $1.85B, Stockwinners
Tropicana Entertainment sold for $1.85B, 

Eldorado Resorts (ERI) announced that it entered into a definitive agreement to acquire Tropicana Entertainment (TPCA) in a cash transaction that is valued at $1.85B.

The definitive agreement provides that Gaming and Leisure Properties (GLPI) will pay $1.21B, excluding taxes and expenses, for substantially all of Tropicana’s real estate and enter into a master lease with Eldorado for the acquired real estate and that Eldorado will fund the remaining $640M of cash consideration payable in the acquisition.

Tropicana Entertainment sold for $1.85B, Stockwinners.com
Tropicana Entertainment sold for $1.85B, 

 

The transaction is expected to be immediately accretive to Eldorado’s free cash flow and diluted earnings per share, inclusive of identified expected cost synergies of approximately $40M in the first year following its completion and when giving effect to the lease transaction described below.

Pursuant to the transaction, GLPI is expected to acquire the real estate associated with the Tropicana property portfolio, except the MontBleu Casino Resort & Spa in South Lake Tahoe and the Tropicana Aruba Resort and Casino.

Following the acquisition of the real estate portfolio by GLPI, Eldorado will enter into a triple net master lease for the acquired properties with an initial term of 15 years, with renewals of up to 20 years at the Eldorado’s option.

The initial annual rent under the terms of the lease is expected to be approximately $110M.

Tropicana intends to dispose of Tropicana Aruba Resort and Casino prior to closing.

Eldorado’s net purchase price after the application of Tropicana’s expected net cash on hand and cash flow generated from operations through closing represents an estimated trailing twelve months EBITDA multiple of approximately 6.6x at closing.

Including the $40M of identified cost synergies, the purchase price multiple is expected to be below 5.0x.

The board of directors of each of Eldorado, GLPI and Tropicana approved the transaction, which is expected to close by the end of 2018, subject to receipt of required regulatory approvals and satisfaction of other customary closing conditions.

Eldorado intends to fund the transaction consideration of approximately $640M payable by Eldorado and repay debt outstanding under Tropicana’s credit facility with cash generated from its current operations, proceeds from pending asset sales, Tropicana’s cash on hand, cash flow generated from Tropicana operations through closing and $600M of committed debt financing from J.P. Morgan.


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Alkermes higher as FDA reverses its earlier decision

FDA rescinds Refusal to File letter for Alkermes depression drug

Alkermes announces FDA Refusal to File letter received for ALKS 5461. Stockwinners
Alkermes higher as FDA reverses its earlier decision

Alkermes (ALKS) announced this morning that the FDA accepted for review the New Drug Application for ALKS 5461, an oral investigational medicine for the adjunctive treatment of major depressive disorder in patients with an inadequate response to standard antidepressant therapies.

FDA’s target action date for the ALKS 5461 NDA is Jan. 31, 2019.

“FDA’s acceptance of the ALKS 5461 NDA and rescission of the Refusal to File letter issued March 30, 2018 follows productive interactions with the Agency in which Alkermes clarified certain aspects of the NDA submission.

No additional data or analyses were submitted by Alkermes to FDA,” the company said in a statement.

ANALYSTS  COMMENTS

Credit Suisse analyst Vamil Divan raised his price target for Alkermes to $63 after the FDA accepted the new drug application filing for ALKS 5461 two weeks after sending a Refusal to File letter. The analyst says some of his confidence in the drug is renewed, but he admits this is an “unusual situation.” An Advisory Committee meeting to discuss the application will likely be held in Q4 and will be important indicator for the FDA’s ultimate approval decision, Divan tells investors in a research note. He maintains an Outperform rating on Alkermes.

Goldman Sachs analyst Terence Flynn views the FDA accepting Alkermes’ new drug application for ALKS 5461 as an incremental positive. The analyst, however, keeps a Neutral rating on Alkermes with a $44 price target. While ALKS 5461 for the adjunctive treatment of major depressive disorder can now move into the review process, the FDA will most likely convene an advisory panel in Q4 to review the filing, Flynn tells investors in a research note. He believes there’s still a possibility that the FDA requests an additional trial from Alkermes.

Shares of Alkermes fell 22% on April 2 on news that the company received a Refusal to File letter from the FDA for ALKS 5461. In Monday’s pre-market trading shares are up 13% to $48.


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