Seth Klarman‘s Baupost Group LLC stands to make a bundle on Merck’s buyout of Idenix Pharmaceuticals Inc (NASDAQ:IDIX). Assuming Baupost’s more than 35% stake in the company reported on March 31st hasn’t changed, Klarman and colleagues will net close to one billion dollars based on the $24.50 acquisition price.

Seth Klarman Baupost Idenix

Overview of Baupost Group

Baupost Group, which manages $30 billion in assets, owned 53.3 million shares of the maker of hepatitis C treatments as of the end of  March, making it Idenix’s largest shareholder, according to Bloomberg data. Klarman is a well-known value investor, and has profited handsomely from a number of M&A investments over the last couple of years. Since its founding in 1983, Baupost’s lead fund has returned almost 17% a year, compared to just 11% annually for the Standard & Poor’s 500 Index.

Klarman holds relatively few equities currently as he views the stock markets as overvalued. In a recent letter to investors, he wrote “on almost any metric, the U.S. equity market is historically quite expensive.” Baupost Group was holding 40% of its assets in cash of as year end 2013.

Merck and Idenix deal price “reasonable”

Deutsche Bank Market Research published a “Breaking News” investor newsletter on Merck’s acquisition of Idenix today, June 9th. In the overview of the letter, analyst Alethia Young and collegaues suggest the deal price for Idenix is reasonable. “On the valuation which is close to $4B for Idenix: we believe that if the nukes continue to look safe and are approvable in US and ROW, this valuation is reasonable.”

Idenix Pharmaceuticals Inc (NASDAQ:IDIX) has a reasonably broad future pipeline, including two promising hepatitis C candidates and screening library of nukes including IDX-437 and IDX-459, the latter just beginning P1 enrollment in Europe. The patent life of the nuclear pharmaceutical is until around 2030. The DB newsletter also highlights that Idenix has an NS5A agent (samatasvir) for Hep C that has demonstrated strong activity in combination with a Janssen agent.

In concluding the DB report, Young and colleagues also note, “These nukes are different than other historical nukes like IDX-184. There is some scarcity value to nukes since many companies are not developing them. And we believe that nukes are necessary for shorter duration curative HCV regimens.”