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Each morning, Dealreporter analysts pick out hints of future material developments in merger arb and special situations by combing through dozens of transcripts, SEC filings, analyst reports and news stories. This raw data is combined with proprietary insights and commentary to produce an exclusive report that offers short and long-term actionable ideas. If you have any ideas for coverage please email

Shares of SodaStream (SODA) are bubbling up this morning on a report that PepsiCo (PEP) is circling and willing to pay about USD 2bn for the do-it-yourself soda maker. That price gets you around USD 95 a share for SODA, which is a nice pop from yesterday's closing price of USD 69.35. This report comes courtesy of the Israeli newspaper Calcalist, which says preliminary talks between the companies have already begun and the target is now weighing its options with Coca-Cola (KO). Not surprisingly, PEP Chairman Indra Nooyi is already out this morning saying PEP's reported offer is news to her. Whether that’s a smokescreen is to be determined but weighing in her favor is a consistent trail of commentary from PEP executives that’s been dismissive of M&A. Now some of that talk is stale. Also, that talk has been primarily aimed at convincing shareholders that PEP won't reach for a much larger deal in the energy drink category, perhaps one involving Monster Beverage (MNST). A deal for SODA wouldn’t be in that category or very large, so it could be reconciled with previous comments. Still, given today’s source, the Nooyi denial and perhaps the company’s past commentary, SODA is now up only modestly on the news.

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This news service reported yesterday that bankers may be interested in finding a partner for Health Management Associates (HMA), but suitors aren't exactly jumping at the thought of buying the Florida-based hospital owner. Of course, there’s been much speculation of late that HMA is ripe to be picked off and one company that could do it is Community Health Systems (CYH). This morning, however, we ask if speculators may be homing in on the wrong stalker. Deutsche Bank’s Darren Lehrich is out today pitching Tenet Healthcare (THC) to his clients following a week where he hosted a number of meetings with senior THC executives. And in today’s upgrade note, Lehrich includes a discussion of THC’s M&A plans that seems awfully targeted at the question of whether it might make a move on HMA. Here’s what he had to say. “With regard to larger-scale M&A (acquiring other investor-owned chains), THC did not appear to rule it out.” Given that there are almost no targets in the space other than HMA, this might be viewed as constructive. Unfortunately, Lehrich also pointed out that “THC noted that its strategy in recent years has been to divest rural assets. THC indicated that it was not open to doing hostile M&A, and that it does not see turnaround or distressed assets as appealing M&A targets.“ That line is a little less useful because HMA, while no longer a classic “turnaround,” has a portfolio of mostly rural hospitals. So where does that leave a THC-HMA idea? For now, it probably leaves it on the backburner.

Omnicare (OCR) recently adopted a senior executive “change in control” plan and it has Credit Suisse’s Glen Santangelo asking this morning whether the specialty pharmacy is thinking about a sale. Mind you, the news on this matter is a bit stale as OCR revealed its new plan in a 24 May 8-K. And a quick glance through the details of that filing confirms the new plan is pretty standard as far as these packages go. Santangelo admits as much in a note to clients this morning. But he also says: “In several past instances such action has signaled potential outside interest in the company. OCR has not been recently discussed as a target, nor do we believe the company is currently for sale. However, given OCR’s improving operations in its long-term care group and rapidly growing specialty business, we believe that the potential for a takeout may be underappreciated.” As readers may know, OCR has been a company the Morning Flash has discussed quite often, usually in the context of a possible spinoff of its specialty drug distribution unit. But Santangelo raises the stakes a bit this morning by arguing that “OCR could make sense within the broader portfolio of a drug distributor, and to a lesser extent a [pharmacy benefit manager] or a drug retailer.” Notably, just last week, this news service reported that bankers thought Cardinal Health (CAH) should focus its attention on buying a specialty drug distributor.

Arbitrageurs are evidently not too scared of Senator Debbie Stabenow (D-MI). Yesterday, the chairwoman of the Senate Agriculture Committee put out a press release a little before 11AM expressing some concern over the sale of Smithfield Foods (SFD) to Shuanghui International, a Chinese pork outfit. On the news, a handful of nervous holders dumped their shares, leaving SFD down about USD 0.27 for a brief moment. But the stock quickly bounced and a half-hour later, it was trading flat on the day. Importantly, the powerful committee chief didn't argue for the deal to be blocked. Instead, she merely called for those agencies reviewing the deal to “take China’s and Shuanghui’s troubling track record on food safety into account, and do everything in their power to ensure our national security and the health of our families is not jeopardized.” Of course on deal day, there was some murmuring that key lawmakers, prodded by a connected constituent or two, might meddle in this politically sensitive deal. To date, no power-wielding “ag-types" have come out in opposition. Based on yesterday’s price action, it seems arbitrageurs aren't too worried Stabenow will become a problem.

Late on a Friday afternoon in April, during the middle of earnings season, BlueMountain Capital Management dropped off a 13D with the SEC that detailed a 5.6% stake in Lexmark International (LXK). Typically, the Morning Flash would have noted this disclosure, but because BlueMountain isn't often associated with rough and tumble activism this piece missed the cut on a busy Monday morning. Thankfully, BlueMountain gave us a second bite at the apple yesterday. Late in the trading day, BlueMountain filed an amended 13D and this time the investment manager confessed to owning nearly 4.4m shares, or 7% of the Kentucky-based company. A quick glance at BlueMountain’s quarterly filings reveals the fund has gone from zero to sixty pretty quickly in LXK with no reported holdings prior to disclosing a modest position at the end of March. That said, its position is now worth more than USD 130m, which apparently makes it the largest equity position in the fund. So what is a fund known for credit arbitrage doing in a dirt-cheap printer manufacturer? Particularly one that has been known to blow up in months that begin with the letter “J.” Well, as we hinted at earlier, this is a name that trades at about 8x earnings and 3x its estimated EBITDA. On top of that, BlueMountain did mention back in April that it intends to discuss strategic alternatives with the company. We’re curious if terms like “LBO” or “Asian Buyer” might come up in those talks.

Nobody can accuse Endo Health Solutions (ENDP) CEO Rajiv De Silva of being afraid to make a decision. Less than three months after taking over at ENDP and just one week after making some major management changes, De Silva announced last night a sweeping plan to drive shareholder value. The plan is extensive, but here are a few highlights. First, De Silva is looking to strip USD 325m out of ENDP’s operating expenses. Two, the company will “explore strategic alternatives for its HealthTronics business and branded pharmaceutical discovery platform.” HealthTronics is a provider of healthcare services, primarily for the urology community, that produced 7% of the company’s topline in 2012. This business was acquired about three years ago so this is an abrupt about face. Lastly, De Silva wants business development to be a priority. With that in mind, he said on a conference call last night that he plans to make several acquisitions over the next 18 months, most likely sized between USD 250m and USD 500m. The news is winning accolades from at least one corner as JPMorgan’s Chris Schott is out this morning telling clients: “In our view, these initiatives represent a significant first step towards repositioning Endo into a leaner, more focused company able to participate in the broader wave of consolidation throughout the specialty/generics industry.”

by Don Bilson and Vincent Chan

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