Management likely thought the announced deal would spike MNK’s share price but it has not. The company has now taken on more debt and more intangible assets, yet investors have not rewarded Mallinckrodt with a higher enterprise value. Investors did not appear to like the deal either. MNK is off over 25% since the transaction was announced. Its bond yields also surpassed 11% – junk territory. Shocking The Street, an investment service I run in conjunction with Seeking Alpha, now estimates Mallinckrodt’s intangible assets are impaired by over $4 billion.
If Mallinckrodt does not take billions in asset impairment charges when Q4 2017 earnings are announced them CEO Mark Trudeau will have a lot of explaining to do. My guess is that between now and February 27th (when earnings are expected to be announced) management and the auditors will wring their hands and gnash their teeth on what course of action to take. The company will likely delay earnings until it can sort out what size write-off to take. Either way the stock will likely crater.