PBP - where's the beef?

Probiotec today announced it had acquired 3 pharmaceutical products including all associated intellectual property from Johnson and Johnson. The acquisition price was $4.25m plus stock at cost to be funded by PBP's existing debt facility. The company claims the acquisition will be eps neutral for FY07 and eps positive for FY08. Other than that there is very little to go on. No information on the revenue that these pharmaceuticals currently bring in, their current share of the market and whether that has been declining or increasing. Thus it is impossible given the information regarding the transaction to assess the value of the acquisition.

What is certain is that PBP's gearing level has risen to around 70%. My preferred measure of a company's performance is Return on Equity however it is more instructive to look at Return on funds employed (ROFE) for businesses that carry high debt levels. The extra debt brings PBP's ROFE down to an uninspiring 9.0%

As an investor you would like to think that management would only purchase market leading products with firmly established market share or up and coming products that are gaining market share. However if that is the case it begs the question as to why Johnson & Johnson is offloading them. Lack of information means you have to take management at their word. PBP haven't disclosed any more or less than most companies do regarding acquisitions however the lack of information doesn't inspire much confidence. PBP shares closed up 5.9% at $1.07.