NeighborCare (NASDAQ:NCRX), incorporated in 1985, is a provider of institutional pharmacy services in the United States. The company offers it services to long-term care facilities in 32 states and the District of Columbia. Its pharmacy operations consist of institutional, community-based professional retail, and onsite pharmacies that are located in customers' facilities. In addition, NeighborCare operates home infusions, respiratory and medical equipment distribution centers.
As readers of this newsletter already know, NeighborCare is currently a "buy-out" target for Omnicare (NYSE:OCR), a company which provides contract pharmacy services. An offer has been on the table for many months, however Neighborcare's board has continually rejected the $30 cash proposal, calling the deal financially inadequate and advising shareholders against approving the merger. Due to this opposition from management, Omnicare has taken its proposal to the company's investors, initiating a hostile bid in an attempt to complete the transaction.
Although it seemed promising at first, the strategy has yet to resolve the situation and OCR has once again extended its deadline in the $30-per-share offer. The new date is April 1, however it is unlikely the merger will be consumated at that time. In fact, in will probably drag on into mid-summer but regardless of the outcome, it appears the current value of the company is in the $28-$30 range. Traders who agree with that assessment should consider this position. It will not be included in the OW portfolio.
Sell Put APR 27.50 QNY-PY
Current Bid = $0.65 Open Interest = 538
Potential Profit (5 contracts) = $325
Initial Margin (5 contracts) = $5,050
Return on Investment (max) = 5.9%
Cost Basis in Stock = $26.85
Days to Expiration = 33