Solta will be acquired soon, Here is Why

In August of 2012, I wrote an article detailing why Obagi Medical Products would be acquired soon. Obagi was under pressure from Voce Capital Management to sell the company. Obagi resisted acquisition interest for a time, until Voce and other activist investors ramped up their collective pressure. Finally, Obagi was acquired by Valeant Pharmaceuticals (VRX) in March of this year, for $24 a share.

Voce is now focused on getting Solta Medical, Inc. (SLTM) acquired, and has remarked that there is interest from some major players in the segment to acquire the company. Soltra designs, develops, manufactures, and markets energy-based medical device systems for aesthetic applications.

Like the Obagi Board of Directors (BOD), the Solta BOD has been showing some resistance to an acquisition as noted by Voce in a letter made public on July 19, 2013. On May 7 of this year, Voce made public a letter sent to the Solta, which opposed the company's plan to double the authorized share (AS) count of Solta from 100M to 200M.

Shareholders of Solta definitely took notice of this letter, as on June 10, the proposal to increase the AS count was soundly rejected, 39,100,516 to 31,511,385.

Last year, Voce scored a similar win, when Obagi attempted to instate a poison pill to thwart a potential hostile take-over of its company. The end result here with Solta is likely to end in the same result with Obagi; an acquisition of the company. Furthermore, sources tell me that many of the same activist investors that were involved with getting Obagi sold, are now involved with Solta, and own substantial shares in the company.

These same shareholders won with Obagi, and it's a good bet they will win here in getting Solta sold. Solta's BOD should take notice of this, and also be aware of other activist shareholders lining up with Voce in this matter.

Solta would be best served to take notice what Voce and these activist investors did with Obagi, rather than to resist any further the will of these shareholders.

Below, are the companies I have been hearing are interested in bidding for Solta:

Valeant Pharmaceuticals. Valeant develops, manufactures, and markets pharmaceutical products and medical devices in the areas of neurology, dermatology, and branded generics. It offers dermatology products.

Valeant has been very busy over the last year, making several key acquisitions. One such acquisition I already mentioned was Obagi Medical Products, which Valeant purchased for $360M. In May of this year, Valeant acquired Bausch & Lomb for a hefty $8.7 billion in cash. The acquisition expanded Valeant's pipeline of products and levers its ability to capitalize on rising eye-health trends. Valeant also acquired Medicis Pharmaceuticals in September of 2012, for $44.00 per share in cash, translating to a $2.6 billion deal. One strong reason Medicis was acquired by Valeant was for its facial aesthetics portfolio. Solta has a very strong portfolio in this segment, and with Valeant seemingly looking to gain even more business leverage, it makes the most sense that it will be the lead bidder for Solta.

Allergan Inc. (AGN). Allergan discovers, develops, and commercializes pharmaceutical, biological, medical device, and over-the-counter products for the ophthalmic, neurological, medical aesthetics, medical dermatological, breast aesthetics, urological, and other specialty markets. Up until recently, Allergan was looking to acquire more assets and increase its overall market share. However, recent reports indicate that the company itself has become an acquisition target. In a note released by BMO Capital, analyst Alex Arfaei believes Merck (MRK) could look to buy Allergan or Onyx Pharmaceuticals (ONXX). It's interesting to note than Onyx has been in play ever since it turned down a reported $120M offer from Amgen (AMGN) , and has since attracted multiple suitors, driving its stock price considerably higher.

In contrast, Allergan shares have been struggling lately after news the U.S. Food and Drug Administration (FDA) is allowing a generic version of one of the company's key drugs, Restasis, to be approved without clinical testing.

Regardless, it's still possible Allergan might be able to fend off being acquired by buying a much smaller pharma, as the company is rumored to be interested in Solta.

Solta's BOD needs to consider the outcome of the Obagi acquisition. Voce was a key player in getting Obagi sold, and is ramping up the pressure here with Solta. Solta needs to fully understand that it is a public company who has been wrecking shareholder value for some time now. All public companies are for sale, especially a small one like Solta, whether its BOD likes it or not. It's in the BOD's best interest to maximize its share price, as insiders own nearly 25% of the company. It's worth noting that insiders have been buying and acquiring shares of their company recently.

Recent Insider Transactions (direct purchases and option acquisition)

Above we see mostly options granted, but no dispositions of them. Perhaps the insiders behind the scenes are quietly wanting and expecting to sell their company, but putting on a different face for the general public so they are not perceived to be acquiring shares with possible advance knowledge of an acquisition. Also worth noting, are the buys immediately after Voce started to put the pressure on Solta back in April of this year:

• Linda Graebner purchased 15,000 shares on May 10-30 and currently holds 37,909 shares or less than 0.1% of the company. Linda Graebner serves as a director of the company.
• Cathy McCarthy purchased 10,000 shares on May 17 and currently holds 77,975 shares or 0.1% of the company. Cathy McCarthy serves as a director of the company.
• Mark Sieczkarek purchased 150,000 shares on May 6 and currently holds 192,975 shares or 0.2% of the company. Mark Sieczkarek serves as a director of the company.

Considering the above, I speculate that insiders quietly want to sell the company, and I expect an acquisition to occur soon.

Conclusion:

Having an activist institutional investor such as Voce lining up to get Solta sold is powerful. Voce's modus of operandi here is identical to what they did with Obagi. Voce was successful in its bid to get Obagi sold, and they will likely be successful here with Solta. Also, sources have told me that additional activist retail shareholders have been buying shares, the kind off activist investors that only buy companies to get them sold.

I successfully predicted Obagi would be sold for over $22 a share, and I'm predicting that Solta will be sold for around $5.50 to $6 a share, translating to a deal over $400M.

An acquisition of Solta should occur anywhere between 2 to 6 months from now, if not sooner.