beyondbrics

By Hanna Gezelius and Mintoi Chessa-Florea of mergermarket

A takeover offer by South Africa-based Aspen Pharmacare Holdings for Australian Sigma Pharmaceuticals for A$0.55 per share, which amounts to A$647m, (€435m) highlights two main recurrent themes that are being weaved in the current healthcare sector: the attractiveness of emerging markets – and the sudden wave of bids for generic manufacturers and distributors.

The bid is revised from a lower bid of A$0.60 per share in May after a more insightful due diligence process which may have revealed further cracks in the balance sheet.

While the bid still offers a premium over Sigma’s last traded price of A$0.395, this price has decreased 55 per cent in the last six months. It therefore makes sense for a “rudderless ship” like Sigma, whose management resignations earlier this year were probably crucial to a recovery plan, to be taken under the wings of a solid management structure like Aspen’s.

A large part of the financial community will likely agree that a marriage between the two companies will turn out to be a win-win situation. Sigma is deemed an accretive acquisition to Aspen, which already has a broad spread in emerging markets, but also the expertise to turn around an ailing business. Aspen is already Africa’s largest pharmaceutical manufacturer and a major supplier of branded and generic pharmaceutical, healthcare and nutritional products to southern Africa and selected international markets.

Aspen’s presence in Australia since 2001 has been mostly in distribution – so adding Sigma to its portfolio will give them a manufacturing footprint in Australia but also enhance its presence in south east Asia. Sigma exports its Australian-made pharmaceuticals through a network of distributors, to countries including Bangladesh, Cambodia, Hong Kong, Singapore, Pakistan, Vietnam, Sri Lanka just to name a few.

Sigma is taking its time to consider the revised offer and will make a further announcement in due course. As per a CitiGroup report “a poor balance sheet means it cannot negotiate asset sales or revise customer trading terms from a position of strength”.

While Sigma is not accepting any other bids, it would be far better for it to cut its losses and take up Aspen’s offer rather than risk potential value leakage for equity holders by being forced to sell assets cheaply to meet its syndicated debt facility payments.