The Vectura (LSE:VEC) share price has been moving like a rollercoaster this week. After two days of continuous surging, the stock has dropped sharply back down again. Overall, the UK medical devices stock is up around 6% compared to last Friday. But its 12-month performance is an impressive 38%. So, what’s behind this latest price momentum? And should I be considering the business for my portfolio?
The rising Vectura share price
Typically, when seeing a sudden jump in a stock, it’s tied to the release of a solid earnings report. But in the case of Vectura’s share price, the surge was caused by the prospect of a buyout. Back in July, the stock jumped after receiving a takeover bid from cigarette producer Philip Morris at an acquisition price of 150p per share. In the final hours of trading last Friday, a new bid emerged from Murano Bidco.
The new 155p offer ultimately sparked a short bidding war. Philip Morris quickly raised its initial offer to 165p. The expectations of a comeback from Murano pushed the Vectura share price to as high as 174p. But despite investor expectations, Murano announced it would not be placing a higher bid, and the stock quickly fell to reflect the Philip Morris offer.
Given the higher price, the Vectura management team has officially recommended the takeover bid from Philip Morris to shareholders. However, this decision has created quite a bit of controversy.
The risks of regulatory intervention
The irony of a cigarette company acquiring a business that makes medical devices for respiratory diseases is not exactly hard to spot. And it’s caused some anger among health lobbyists. Even politicians are getting involved with the shadow health secretary, Jonathan Ashworth, opposing the deal and calling it “utterly wrong”.
As per acquisition rules in the UK, all takeovers must be approved first by the shareholders of both businesses involved, as well as by regulators. Given the controversy surrounding this deal, I personally think the odds of an intervention are higher than usual. And this risk is likely a contributing factor as to why the Vectura share price is currently trading below the 165p offer.
Having said that, even if the deal is rejected by regulators, it may not cause a complete meltdown in the stock. After all, the 155p offer from Murano Bidco is still on the table. And so, to me at least, the potential downside of a failed buyout by Philip Morris is somewhat limited.
The bottom line
All things considered, Vectura is not a business I will be adding to my portfolio today. Even if the Philip Morris offer goes through, the potential upside is relatively tiny versus the potential downside. In other words, the risk does not match the reward, I feel.
