Global Insight Perspective | |
Significance | Zentiva's board of directors has accepted a higher takeover offer from Sanofi-Aventis, and has recommended that shareholders tender their shares to the French firm's European subsidiary. |
Implications | The offer of 1,150 koruna (US$69.71) per share outflanks that made by U.S. Barr Laboratories for Pliva in 2006, indicating the growing strategic value of generics players in Central and Eastern Europe (CEE). Zentiva will operate under its current name for the foreseeable future, and will act as Sanofi-Aventis's CEE generics base. |
Outlook | Despite growing steadily, Zentiva also has massive debts which will be costly for Sanofi-Aventis to take on. Despite this, strong growth in emerging markets is a priority for Sanofi-Aventis in order to plug growing holes elsewhere in its portfolio. |
Czech generics company Zentiva N.V. has accepted a new acquisition offer made by French pharmaceutical giant Sanofi-Aventis, more than three months after announcing an initial bid that has since been rejected twice. The board has also recommended that Zentiva's shareholders tender their shares to subsidiary Sanofi-Aventis Europe, which made the actual offer. Sanofi-Aventis's revised offer now stands at 1,150 Czech koruna (US$69.71) per share or approximately 43.9 billion koruna in total, marking an improvement of 9.5% over its original offer and a premium of 25.5% over Zentiva's closing share price of 916.60 on 30 April, which was the last day of trading on the Prague Stock Exchange before the first bid for the Czech firm was announced by the PPF Financial Group.
Zentiva's board of directors is reported to have unanimously accepted the improved offer, which will see the Czech drug-maker operate under the Zentiva brand "for the foreseeable future", remaining under the stewardship of CEO Jiri Michal. Sanofi-Aventis has described Zentiva as its "platform for […] further growth in the Central and Eastern European (CEE) markets, focused upon providing affordable pharmaceuticals to patients in this region."
The next step for Sanofi-Aventis—which currently owns 9.5 million shares or 24.88% of Zentiva—is to submit a draft amendment to its original offer to the Czech National Bank (CNB). If the CNB does not prohibit publication within five working days, Sanofi-Aventis will then seek to publish its offer in country's official gazette, Hospodarske Noviny. Only when this has been done will the offer become legally binding.
Outlook and Implications
Sanofi-Aventis's persistence in courting Zentiva has paid off, and the merger promises to make the French firm a major player on the CEE market. Zentiva's US$2.7-billion price tag tops that made for Pliva; the most recent large-scale acquisition by a Western player of a CEE generics company (see Croatia: 26 October 2006: Third-Largest Generic Drug Firm Born As Barr Finalises Acquisition of Pliva).
The French pharma heavyweight will be gaining a regional player with impressive growth on the generics market. The first six months of 2008 saw Zentiva's net sales jump by 32.3% year-on-year (y/y) in reported terms, reaching just under 9 billion koruna. Operating profit, calculated by Zentiva as earnings before interest and taxes (EBIT), grew 40.1% y/y and reached 1.6 billion koruna, creating an EBIT margin of 17.3%. Despite this, Zentiva remains saddled with heavy debts; the company's net debt to equity ratio at the close of the first half of 2008 was 126.8%. Acquiring this debt and working to eliminate it will be costly for Sanofi-Aventis, which has only just recovered from the financial burden of acquiring Aventis Pharma in 2004, and whose operating profit—calculated by Global Insight as net sales minus cost of sales, R&D, and selling and general expenses—grew by just 0.8% y/y during the second quarter.
Nevertheless, what counts most for Sanofi-Aventis at the moment is market growth, and Zentiva's rapidly growing sales in Turkey, Russia and Romania are exactly what the French company needs to help it stop stagnating (see France: 31 July 2008: Sanofi-Aventis Boosts FY Guidance Despite Drop in Q2 Sales). Following the replacement of Sanofi-Aventis's CEO earlier this month (see France: 10 September 2008: Shareholders Behind Proposed Change of Direction at Sanofi-Aventis), the impending merger with Zentiva should give shareholders some confidence that the French company is taking steps to address the challenges facing its sales and profitability.