Given Imaging should climb onto the auction block, investor says

Given Imaging markets the PillCam devices around the world.--Courtesy of Given Imaging

Given Imaging ($GIVN) should be looking around for a buyer, one activist investor said, but not before spending $50 million of its excess cash on a share buyback.

Discovery Group, which owns about 4% of Given, alleges that the company's share price has suffered due to a poorly executed business strategy and loss of credibility with investors, citing repeated missed opportunities for Given's flagship PillCam devices. The Israeli devicemaker could fetch between $26 and $30 per share in a buyout, Discovery Partner Mark Buckley wrote in a letter to management, valuing the company at around $900 million.

First, though, it needs to give some of the cash it's carrying back to shareholders. Given has little debt to speak of and is pointlessly holding on to $129 million in cash, according to Discovery. Under Israeli law, the company has until Nov. 15 to spend up to $50 million of that sum on a share repurchase at a reduced tax rate, and it owes investors that much, Buckley wrote in the letter.

"We no longer believe Given Imaging can attain its true intrinsic value in the public markets," Buckley wrote. "By returning excess cash to shareholders and conducting a full auction process to sell the company, the board will remove the execution risk that exists under the current management regime while providing shareholders with an attractive return."

Given said in a statement that its board will review Discovery's letter and respond in due course.

Back in October, Given was of similar mind, spending months exploring the idea of a sale before deciding to go it alone in January. Since then, the company has notched regulatory wins around the world for PillCam, but it has endured jeers from investors and analysts for its decisionmaking, last year watching its stock drop nearly 10% when it asked the FDA to indicate PillCam Colon 2 for a subset of patients instead of for general use.

The company's sale exploration was "half-hearted," Discovery alleged, and Buckley writes that his firm has talked to potential buyers who see loads of potential in Given's technology.

"Consistent with our observations, these companies recognize the same missed opportunities and failed management," he wrote. "Most importantly, the strategic buyers also recognize the compelling opportunity which still exists and are eager to participate in a formal and legitimate sale process."

- read the letter (PDF)

Special Report: How did Israel become a hotbed for medical devices?