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Signed agreements for acquisition and Renewal of Cautionary
ASPEN PHARMACARE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1985/0002935/06
Share code: APN
ISIN: ZAE000066692
(“Aspen Holdings”)
ASPEN ANNOUNCES:
- SIGNING OF AN AGREEMENT TO ACQUIRE API MANUFACTURING FACILITIES;
- AGREEMENT ON AN OPTION TO ACQUIRE A PORTFOLIO OF PRODUCTS FROM MSD; AND
- THE RENEWAL OF A CAUTIONARY ANNOUNCEMENT
Further to the cautionary announcement dated 4 February 2013 and the subsequent renewals thereof
dated 7 March, 23 April and 3 June 2013, Aspen Holdings is pleased to announce that the Aspen Group
(“Aspen”) has:
- signed an agreement with MSD (known as Merck in the United States and Canada) for the acquisition
of an active pharmaceutical ingredient (“API”) manufacturing business which manufactures for MSD
and the market generally and which is located in the Netherlands with a satellite facility and sales
office in the US (“the API Business”); and
- reached an agreement on an option to acquire a portfolio of 11 branded finished dose form molecules
(“the Products ”) from MSD, covering a diverse range of therapeutic areas and including products that
use APIs manufactured by the API Business.
(collectively “the Transaction”)
The Transaction is subject to, amongst others, the following conditions precedent:
- the approval of various competition authorities;
- the approval of the Financial Surveillance Department of the South African Reserve Bank; and
- completion of subsidiary agreements to the satisfaction of all parties.
The Transaction is valued at approximately US$ 1 billion (ZAR 10.06 billion at ZAR 10.06/US$) and comprises
the following elements:
- In respect of the API business:
- Aspen Holdings will acquire the shares of a new Dutch company (“Dutch Newco”) that is being
formed by way of de-merger processes from the two separate MSD entities in which the API
Business currently resides for a consideration of approximately €36 million (ZAR472 million at
ZAR 13.11/€); and
- Dutch Newco will simultaneously acquire inventory with an expected value of approximately
€300 million (ZAR 3.9 billion at ZAR13.11/€). Approximately two-thirds of this value comprises
inventory relating to the continued supply of APIs to MSD in terms of a 10-year supply
agreement and will be acquired by way of a loan from MSD, with repayment at the end of the
tenth year of the supply term.
- In respect of the Products:
- Aspen Global Incorporated, a wholly owned subsidiary of Aspen Holdings, has the option to
acquire the Products by way of the exercise of a call option with a resulting asset purchase for a
consideration of US$600 million. US$533 million of the consideration for the Products and IP
will be paid on the effective date of the Transaction and the balance of this consideration will
be paid in five equal annual instalments commencing at the end of the first year after the
effective date.
The effective date of the API Business acquisition is expected to be 1 October 2013 while the expected
effective date of the Products acquisition through the exercise of the option is 31 December 2013.
Funding
The Transaction, other than the deferred payment elements for the MSD inventory and the Products, will
be funded from new debt facilities which are at an advanced stage of negotiation. It is planned to fund the
deferred payments from Aspen’s existing cash at the time payment is due.
Financial effects
The unaudited pro-forma financial effects set out in the tables below have been prepared to assist Aspen
shareholders to assess the impact of the transactions on the earnings per share (“EPS”) and diluted EPS,
headline EPS ("HEPS") and diluted headline EPS, diluted normalised HEPS and the net asset value ("NAV")
and the tangible NAV ("TNAV") per Aspen ordinary share as at 31 December 2012 and for the interim
period then ended. The pro-forma financial effects have been prepared for illustrative purposes only and,
because of their nature, they may not fairly present Aspen’s financial position at 31 December 2012 and
the results of its operations for the six months then ended. It has been assumed for the purposes of the
pro-forma financial effects that the transactions took place with effect from 1 July 2012 for Statement of
Comprehensive Income purposes and 31 December 2012 for Statement of Financial Position purposes. The
Directors of Aspen are responsible for the preparation of the financial effects which have not been
reviewed by the auditors.
The "After" columns represent the effects after the transactions.
The "Change %" columns compares the "After" columns to the "Before" columns.
The number and weighted average number of shares in issue have been stated net of treasury shares.
“Before” “After” % Change
Cents Cents
EPS for the six-months ended 31 December 2012 369.3 371.4 0.6%
HEPS for the six-months ended 31 December 2012 371.1 373.2 0.6%
Diluted EPS for the six-months ended 31 December 2012 368.7 370.8 0.6%
Diluted HEPS for the six-months ended 31 December 2012 370.5 372.6 0.6%
Diluted normalised HEPS for the six months ended 31 December 2012 379.0 449.9 18.7%
NAV as at 31 December 2012 4 168.1 4 099.1 (1.7)%
TNAV as at 31 December 2012 (482.0) (1642.6) (240.8)%
Number of shares in issue as at 31 December 2012 (million) 455.0 455.0
Weighted average number of shares in issue for the six months ended at
31 December 2012 (million) 455.6 455.6
Weighted average number of diluted shares in issue for the six months
ended at 31 December 2011 (million) 456.3 456.3
Notes:
1) The “Before” column is extracted from the published interim financial statements for the six months
to 31 December 2012.
2) The figures for the API business were extracted from the unaudited management accounts of MSD
for the six months ended 31 December 2012.
3) The figures for the Products were derived from the unaudited management accounts of MSD for the
six months ended 31 December 2012 and the audited financial statements of Merck & Co., Inc. for
the year ended 31 December 2012.
4) A preliminary assessment has indicated that the intellectual property relating to the products
constitutes indefinite life assets and hence no amortisation has been provided for in the pro-forma
financial effects above.
5) Non-recurring transaction costs of R314 million are included in determining the financial effects,
none of which has been capitalised. The R314 million is excluded in determining the impact of the
transactions on diluted normalised HEPS and represents the only adjustment to diluted HEPS in
determining diluted normalised HEPS.
6) Notional interest for the six months ended 31 December 2012 has been provided based on the costs
of financing the transaction.
The API Business
The API Business consists of manufacturing operations within existing MSD sites comprised as follows:
- In Oss, the Netherlands, parts of the Moleneind and De Geer sites as well as the entire Boxtel site;
and
- Sioux City, Iowa, in the US.
The business also has sales offices at the Oss site in the Netherlands and in Des Plaines, Illinois, in the US.
The products manufactured at the sites fall into two categories, namely biochemicals, where biological
processes are involved, and chemicals where the process is fully synthetic. The API Business recorded pro-
forma revenue of €284 million in the year ended 31 December 2012.
The Products
The Products comprise a portfolio of 11 branded finished dosage form molecules, covering a diverse range
of therapeutic treatments. The main brands being acquired, by therapeuric area, are:
Hormone replacement therapy: Ovestin, Sustanon, Metrigen
Oral Contraceptive: Gracial, Novial
Anti-coagulant: Orgaran
Corticosteroid: Decadron, Oradexon, Meticorten, Meticortelone
Anabolic steroid: Deca Durabolin
Hyperthyroidism: Thyrax, Strumazol
Vitamin B complex: Benutrex
MSD reports that the products which are the subject of the transactions recorded revenue of
US$ 248 million in its financial year ended 31 December 2012. More than half of this revenue was
generated in Aspen’s key strategic regions of Latin America and Asia Pacific with Europe being the other
large territory.
The Products will be initially manufactured under the pre-existing MSD manufacturing arrangements in
terms of a medium term supply agreement between Aspen Global Incorporated and MSD.
Rationale
One of Aspen’s primary strategic intents is to further globalise its business, increase its representation
across a number of additional territories and provide support to its growing global presence with a
differentiated pipeline. This Transaction will contribute to the achievement of this strategic intent by
enabling Aspen to access a niche range of APIs and finished dosage products.
The following additional considerations further support the Transaction:
- The API Business manufactures heparin, the API used in the manufacture of Fraxiparine, one of the
products for which Aspen has made an offer to GSK (refer to Aspen’s cautionary announcement of
18 June 2013);
- The API Business manufactures the APIs used in a number of the products Aspen will be acquiring
under the Transaction, allowing for effective vertical integration;
- MSD will continue to acquire APIs from Aspen under a 10-year supply contract which will provide
significant on-going volumes for the API Business;
- Aspen plans to improve the cost competitiveness of the APIs;
- There are opportunities for Aspen to develop finished dosage form products from certain of the
APIs such as hormones and peptides;
- The Products will complement Aspen’s existing portfolio and will provide critical mass to the Aspen
offering in a number of markets. This will allow for additional promotional impetus to Aspen’s
portfolio of global brands; and
- These niche Products will substantially supplement Aspen’s growing footprint in a number of
emerging and established markets – the notable presence of these products in Latin America and
Asia Pacific is supportive of Aspen’s aspirations for these regions.
Cautionary announcement
Shareholders are referred to the cautionary announcement released on SENS on 18 June 2013 wherein
Aspen Holdings and Aspen Global Incorporated are currently engaged in discussions with
GlaxoSmithKline Plc and are advised to continue to exercise caution when dealing in Aspen Holdings
securities until a further announcement is made in respect thereto.
Durban
27 June 2013
Underwriters
The Standard Bank of South Africa Limited
Bank of America, N.A.
Mandated Lead Arrangers and Bookrunners
The Standard Bank of South Africa Limited
Banc of America Securities Limited
Sponsor:
Investec Bank Limited
Date: 27/06/2013 12:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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