Pharma Takeover

Investors Suspicious of Stada Tactics

  • Why it matters

    Why it matters

    Stada’s share price could collapse if neither of the two bids materializes.

  • Facts

    Facts

    • Two private-equity takeover consortia have announced bids of €58.00 a share, or around €3.6 billion ($3.9 billion) in total.
    • Stada’s supervisory board chairman, Carl Ferdinand Oetker, wants to drive the price up to at least €70.00 a share, financial sources told Handelsblatt.
    • Stada’s share price dropped by about 1 percent on Friday and another 0.6 percent on Monday, trading at €55.77.
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Pharmabranche sucht Rezepte für die Zukunft
Stada management says the company can boost earnings in both the generic and the branded sectors. Source: Frank May/DPA

Pharmaceuticals company Stada is worth more than the share price indicates, if one is to believe the message the board sent out on Friday when it raised medium-term forecasts.

Chief executive Matthias Wiedenfels wants to boost its operatning profit 45 percent by 2019, rather than around a quarter as previously announced. Mr. Wiedenfels told Handelsblatt the new profit guidance “shows the company is strong, has great potential, and that we are taking the right steps.”

On the markets, the improved forecast looks like a retrospective justification for the Stada supervisory board’s decision, announced a day earlier, to put off planned talks with two prospective bidding consortia.

Both groups of private equity firms, Advent and Permira on one hand and Cinven and Bain on the other, have announced bids of €58.00 ($62.30) a share, or around €3.6 billion ($3.9 billion) in total. According to the Stada board, these offers do not reflect the firm’s true value. But many suspect Stada is deliberately driving its share price up.

Stada boss Mr. Wiedenfels says it is pure coincidence the prognosis was raised just a day after the talks were cancelled. “We found that we have made progress with the reorganization at Stada much more rapidly than expected,” he told Handelsblatt, “and we’ve identified further growth opportunities. Once we had taken that into account in our planning, we also had to communicate it ad hoc.”

If the Stada chief hoped to drive up the company’s value, he would have been disappointed on Friday. The share price dropped by about 1 percent, to €56.13 and on Monday afternoon at 2:49 P.M. it was down another 0.6 percent at €55.78.

Resentment is now spreading among investors, who fear Stada is employing delay tactics and preparing to reject the offers.

“It's highly unusual to cancel or postpone discussions like this, with potential take-over bidders, at the last minute. Investors don't like it.”

Fund manager

Information from financial circles indicates the Stada supervisory board has now engaged investment bank Evercore as an auxiliary advisor, alongside Deutsche Bank and Perella. Stada’s supervisory board chairman, Carl Ferdinand Oetker, wants to drive the price up to at least €70.00 a share, the sources said. This would be prohibitively high for the bidding consortia.

“One could be pleased about the the forecast increase,” said one fund manager who owns a stake in Stada. But against a backdrop of cancelled talks, it looks like a tactical maneuver so offers can later be rejected as too low. “It’s highly unusual to cancel or postpone discussions with potential takeover bidders at the last minute like this,” said the fund manager, who did not want to be named. “Investors don’t like it.”

Ulrich Huwald, a pharma analyst at Warburg, said delaying the bidding process was a “risky game.”

Some larger Stada shareholders have insinuated the chairman of the supervisory board has allied himself with employee representatives on the board and is now trying to prevent the sale. Mr. Oetker dismissed these suspicions as “absolute nonsense” in a Handelsblatt interview two weeks ago. He said he was neither for nor against the sale and only wanted to analyze the offers thoroughly.

Some investors have reacted skeptically to the new outlook. They point to considerable uncertainties and the fact that for years the Stada price sat around €30.00 – until active investor AOC got the company moving earlier in the year with changes to management structure and the supervisory board.

Shareholders who came on board at the same time as AOC, or shortly thereafter, and hold a majority of Stada shares, appear to favor a quick sell-off. Should the takeover fail and the Stada share-price drop below €50.00, these investors could try to sue the supervisory board.

Mr. Wiedenfels would not comment on the progress of the bidding process, preferring to stress the company’s improved prospects. “We will further reduce our production and purchasing costs and significantly reduce the complexity of our product range, in some cases reducing growth,” he said. “But the profitability of our turnover will dramatically increase.”

By 2019, Stada wants to boost turnover from its current €2.15 billion to between €2.65 billion and €2.7 billion. The company’s operative profit should then reach between €570 million and €590 million. Last year, EBITDA was €406 million.

Mr. Wiedenfels believes the company can improve its earning power and returns in both the generic and the branded sectors. The internationalization of several brand-name products should contribute to this. On the generic side of the business, Stada plans to bring four “biosimilars” – copies of high-turnover biotech drugs – to market by 2019.

In both segments, Mr. Wiedenfels wants to revise the range, reducing the variety of dosage forms. “We want to dramatically reduce our range of 18,000 individual products,” he said.

 

Siegfried Hofmann and Maike Telgheder cover chemicals and pharmaceuticals for Handelsblatt. Hans-Jürgen Jakobs is a senior editor and former editor-in-chief of Handelsblatt. To contact the authors: hofmann@handelsblatt.comtelgheder@handelsblatt.comjakobs@handelsblatt.com

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