IHS Global Insight Perspective | |
Significance | Aspen has announced its proposal of acquiring Sigma Pharma for a total of A$1.5 billion, including the price to be paid for the 1,178.6 million outstanding Sigma shares as well as the A$785 million reported net debt. |
Implications | The deal is still subject to various conditions at the moment, however, it still reflects Aspen's expansion ambition in the Australian market. |
Outlook | If the takeover can go ahead, Aspen will be set to acquire Sigma's prescription, over-the-counter and generic portfolios including that recently acquired from BMS's Australasian operation. In addition, Aspen will also benefit from Sigma's established network and platform as a leading domestic drug distributor. Nevertheless, the debt reduction will still pose a main challenge for Aspen. |
South Africa's largest pharmaceutical company Aspen last Friday (21 May) announced that it has put forward an indicative non-binding proposal to acquire Australian firm Sigma Pharma at the price of A$1.5 billion (US$1.2 billion). Aspen noted that the price represents A$0.60 per share for 1,178.6 million outstanding Sigma shares and A$785 million for the Australian company's net debt as reported on 31 January 2010. Aspen noted in the statement that its takeover proposal is currently subject to several conditions including due diligence investigation, regulatory approvals and the unanimous recommendations of the Sigma Board.
Sigma is Australia's leading manufacturer of prescription, over-the-counter (OTC) and generic drugs as well as a full-line distributor in the country. The merger with compatriot generic firm Arrow at the end of 2005 further expanded Sigma's product and service ranges. In addition, Orphan Australia, a company providing treatment for serious or life-threatening diseases where there are unmet medical needs, and retail brands such as Amcal and Guardian Pharmacies, also belong to the Sigma group. However, the company's financial performance didn't appear to be upbeat during recent years. At the end of March, Sigma posted its financial performance for the said year, ended 31 January 2010, which registered loss of A$389 million in net profit after tax (NPAT) largely due to the reported goodwill impairment of A$424 million associated with Arrow acquisition goodwill and Herron's weak performance. During the same period, the company's reported earnings before interest, tax, depreciation and amortisation (EBITDA) saw a loss of A$263.2 million. The sales went up 4.5% year-on-year to A$3.2 billion, which was brought up by the increase in the healthcare sector, while pharmaceutical sales slipped by 5.6%. The net total debt stood at A$785 million.
Sigma: Selected Financial Highlights, FY 2010 | ||
Financial Particulars | FY 2010 (A$ Mil.) | % Change Y/Y |
Sales | 3,220.4 | 4.5 |
Pharmaceuticals | 670.9 | -5.6 |
Healthcare | 2,549.5 | 7.5 |
EBITDA (reported) | -263.2 | - |
NPAT (reported) | -389.0 | - |
Source: Sigma March 2010 | ||
Outlook and Implications
Since 2001, Aspen has been operating in the Australian market, where its annual sales stand at some A$180 million. By launching the bid to take over the debt-laden Sigma Pharma, Aspen is looking to acquire the Australian group's local network and platform for the expansion of its operation. In terms of Sigma's business segments, the healthcare distribution operation, which accounted for nearly 80% of the company's total sales, has presented a positive growth trend. It is therefore poised to beef up Aspen's strength for becoming the leading player in the drug-distribution field in Australia, if the transaction can go smoothly. Furthermore, Sigma also acquired U.S. firm Bristol-Myers Squibb's (BMS) operations in Australia and New Zealand for A$60 million last year (see Australia: 8 September 2009: Sigma to Acquire BMS Drugs and Facility in Australasia). The portfolio of products brought in through the acquisition, such as cholesterol-lowering agent Lipostat/Pravachol (pravastatin), will then bolster the potential sales growth in the forthcoming years together with products from Sigma, Arrow and Orphan Australia. Furthermore, the products in Sigma's portfolio will provide an overall boost to Aspen's existing generic and OTC business. Nevertheless, Aspen's proposed acquisition of Sigma, even if successful, will not go without challenges, the foremost of which will be the reduction of the company's A$785-million reported net debt, which was already 15.3% less than that in the previous fiscal year. U.K. drug heavyweight GlaxoSmithKline (GSK) is a stakeholder of Aspen (see South Africa: 12 May 2009: GSK to Strengthen Foothold in Emerging Markets Through 16% Stake Acquisition in Aspen).