| Tue 20 Nov 2007, 11:05 | | APN - Aspen Pharmacare Holdings Limited - Transact |
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APN
APN
APN - Aspen Pharmacare Holdings Limited - Transaction announcement
ASPEN PHARMACARE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1985/0002935/06
Share code: APN
ISIN: ZAE000066692
("Aspen" or "the Company")
Further to the cautionary announcement of 16 November 2007 Aspen is pleased to
announce that it has agreed the terms of a series of transactions with Strides
Arcolab Limited ("Strides"), a pharmaceutical company registered in the Republic
of India. The transactions are as follows:
A. the acquisition by Aspen of 50% of Strides` Latin American operations
("Strides Latina");
B. the formation of a 50% joint venture with Strides to develop, manufacture
and commercialise a range of oncology products on a global basis through
Powercliff Limited ("Powercliff") and Onco Therapies Limited ("Onco");
C. the acquisition by Strides of 51% of Co-pharma Limited ("Co-pharma"),
Aspen`s 100 % owned United Kingdom based subsidiary; and
D. the acquisition by Strides of 80% of the equity in Formula Naturelle (Pty)
Ltd which will, in turn, own a basket of nutraceutical products currently
marketed by Aspen Pharmacare in South Africa.
Together these are hereafter referred to as "the Transactions".
I. BACKGROUND TO THE SUBJECTS OF THE TRANSACTION
Strides Latina
Strides Latina currently comprises two operations namely Cellofarm in
Brazil, and Solara in Mexico. In addition to these two companies, a further
two trading operations, Sumifarma and Mexicana, are in the process of being
established in Venezuela and Mexico respectively. Cellofarm and Solara were
formed in the early 2000`s and they both sell a range of generic products
in a number of therapeutic areas, with a particular focus on sterile
products in the hospital market. The products are either imported from
Strides` manufacturing facilities in India or are manufactured locally.
Revenues for the year ended 31 December 2006 for Cellofarm and Solara were
US$69 million and US$6 million respectively. Both Cellofarm and Solara have
solid dosage manufacturing facilities locally and Cellofarm is in the
process of completing the construction of a sterile manufacturing facility
in Brazil.
Powercliff and Onco
These two companies have been established by Strides to house a greenfield
generic oncology business, including the manufacturing and research and
development operations located at a production facility in India which is
nearing completion and which, prior to this transaction taking place, will
be owned by Onco. An intellectual property pipeline relating to this
business has already been identified by Strides and the rights to 32
oncology products in development will be acquired by Powercliff prior to
the completion of this transaction. As such, the operations will focus on
the manufacture and commercialisation of these initial products and the
development of further products.
Co-pharma
Co-pharma sells a range of commodity generic products in the United
Kingdom. Turnover for the year ended 30 June 2007 amounted to GBP10.4
million.
Formule Naturelle (Pty) Ltd - Nutraceutical Products
Aspen Pharmacare currently markets a range of nutraceutical and health
products in South Africa, under brands such as Formule Naturelle, with the
majority of sales being through pharmacies and major retail chains.
Revenue generated by these products in the year ended 30 June 2007 was R40
million.
II. RATIONALE FOR THE TRANSACTIONS
Aspen has had a development and manufacturing relationship with Strides for
a number of years and discussions revealed an opportunity for the two
parties to form an alliance that would benefit from Strides` strong
development and manufacturing capabilities and Aspen`s proven marketing
track record. All of the transactions will endeavour to realise the
synergy provided by the relative strengths of Aspen and Strides.
Two key areas that Aspen has identified for its future growth are:
- Latin America - a large developing market where it can leverage its
substantial intellectual property portfolio; and
- Oncology, a therapeutic area with high barriers to entry which offers
the potential of superior returns to companies with access to quality
development, manufacturing and marketing capabilities and which adds
critical mass to Aspen`s planned portfolio of sterile products.
Aspen believes that these strategic investments should become value
enhancing to shareholders in the medium term.
Aspen has been seeking a business partner able to extract the potential
offered by Co-pharma`s distribution capabilities in the United Kingdom.
Strides` strengths in development and low cost, flexible manufacture will
provide Co-pharma with an improved product offering.
Aspen has taken the strategic decision to reduce its personal care and
natural products range within its Consumer Division by way of selective
disposals. The hiving-off of the nutraceuticals products is consistent
with this objective. Strides has significant manufacturing capabilities
for soft gel products which comprise a material portion of the
nutraceutical range.
III. THE TRANSACTIONS
Details of each of the transactions outlined above are as follows:
A. Aspen will acquire a 50% interest in Strides Latina via the acquisition of
shares from Strides for US$ 58.5 million and the subscription for shares in
Strides-Aspen Latina (owned 100% by Strides) for US$94 million.
The purchase price for Strides Latina is subject to adjustment pending the
achievement of an agreed level of earnings before interest, tax,
depreciation and amortisation ("EBITDA"), during the year following the
effective date. Should the EBITDA be less than US$28 million, the purchase
price for the shares to be acquired from Strides will be reduced by the
shortfall times a multiple of 4.66.
Aspen has the right to acquire Strides` 50% interest in Strides Latina for
a consideration of 5.59 times the EBITDA of the twelve month period
referred to above at minimum and maximum values US$152.5 million and US$225
million respectively. The option price is subject to adjustment should
profits from new acquisitions be included in the results. Strides` has the
right to put their shares to Aspen at the end of the twelve month period at
a 4.66 multiple of the same EBITDA with a maximum consideration of US$225
million.
B. Aspen and Strides will enter into a 50% joint venture to develop,
manufacture and commercialise oncology products. Aspen will purchase 50% of
the issued share capital of Powercliff from Strides for US$25.75 million
and will subscribe for 49% of the share capital of Onco and issued debt
instruments for US$16.7 million. Aspen has the right to acquire a further
1% of the share capital of Onco for US$340,000. Both Powercliff and Onco
will be owned 100% by Strides at the time of the transaction.
C. Strides will acquire a 51% interest in Co-pharma, Aspen`s United Kingdom
subsidiary, by means of the purchase of a portion of Aspen`s shareholding
in Co-pharma for GBP2.25 million and the subscription for new shares for
GBP375,000.
Between the period 18 months and 36 months from the effective date, Aspen
has the right to require Strides to acquire all of Aspen`s shares in and
claims on loan account against Co-pharma. The claims will be sold at face
value and the shares will be valued based on a seven times EBITDA multiple,
adjusted for the net debt of Co-pharma. The put is subject to a minimum
consideration of GBP2.25 million and a maximum consideration of GBP8
million. At any time after 36 months from the effective date, Strides has
the right to acquire all of Aspen`s shares in and claims on loan account
against Co-pharma on the same terms as Aspen`s put.
D. Strides will subscribe for 80% of the equity of Formule Naturelle (Pty)
Limited, a 100% owned dormant subsidiary of Aspen. The subscription price
will be R35 million. Formula Naturelle (Pty) Ltd will then acquire the
subject business from Aspen for the funds raised by way of the
subscription.
Aspen has the right to sell its 20% shareholding to Strides at a 6.6 times
multiple of the EBITDA for a twelve month period following the effective
date, less R35 million. This put option is subject to a maximum
consideration of R70 million.
Transactions A and B will be funded from existing cash resources which will
include the proceeds from transaction D. The proceeds from transaction C
will be used to fund future investment opportunities.
IV CONDITIONS PRECEDENT
The completion of the Transactions is pending the satisfactory conclusion
of the following conditions precedent:
- The conclusion of legal agreements ; and
- The receipt of the requisite regulatory approvals, namely:
- for Aspen, Exchange Control approval of the South African Reserve
Bank; and
- for Strides, the approval of the Reserve Bank of India and
Strides` bankers and other financial institutions, as
appropriate.
V. PRO FORMA 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"), headline EPS ("HEPS") and
the net asset value ("NAV") and the tangible NAV ("NTAV") per Aspen
ordinary share as at 30 June 2007 and for the year 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 30 June 2007 and the results of its operations for the year
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 2006 for Income
Statement purposes and 30 June 2007 for Balance Sheet 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 of shares in issue and the weighted average number of shares
have been stated net of treasury shares.
Transaction A) Strides Latina
Actual Pro Forma Change %
"Before" "After" the
(1) Strides
Latina
transaction
(2,3,4,5,6)
EPS (cents) for the year ended 30 205.6 194.1 (5.6)
June 2007
HEPS (cents) for the year ended 30 210.1 198.6 (5.5)
June 2007
NAV (cents) as at 30 June 2007 633.3 633.3 -
NTAV (cents) as at 30 June 2007 308.2 100.4 (67.4)
Number of shares in issue as at 30 350.6 350.6
June 2007 (`million)
Weighted average number of shares in 348.9 348.9
issue for the year ended at 30 June
2007 (million)
Notes:
1. Extracted from the published audited annual financial statements for the
year ended 30 June 2007;
2. The figures for Strides Latina were extracted from the unaudited management
accounts of the Strides Latina group for the twelve months ended 30 June
2007.
3. In terms of IFRS 3: Business Combinations, at the effective date of the
transaction the assets acquired through the Strides Latina transaction will
be adjusted to their fair values. For the purposes of these financial
effects estimates of these adjustments have been made with the result that
the net assets acquired have been reduced by US$8.9 million.
4. The excess of the purchase consideration over the fair value of the net
assets acquired represents intangible assets. It is estimated that 25% of
these intangible assets are separately identifiable and amortisable over an
average of 25 years. The balance constitutes goodwill. At the effective
date of the transaction an allocation of the purchase consideration in
terms of IFRS3: Business Combinations will need to be performed and this
could have an impact on the value attributed to separately identifiable and
amortisable intangible assets.
5. Transaction costs of R3.7 million relating to the Strides Latina
transaction were included in determining the financial effects.
6. Although the Strides Latina transaction is to be funded from existing cash
resources, a notional interest charge at a pre-tax rate of interest of
8.71% (being the average for the year ended 30 June 2007) on the cost of
the investment has been included in the financial effects.
7. On initial recognition of the Strides Latina transaction the put and call
options will be measured at fair value using an option pricing model. For
the purposes of these financial effects, based on the terms of the options
and the expected results of Strides Latina the put and call options are
considered to be at fair value.
Transaction B) Oncology
Actual Pro Forma Change
"Before" "After" the %
(1) Oncology
transaction
(2,3)
NAV (cents) as at 30 June 2007 633.3 633.3 -
NTAV (cents) as at 30 June 2007 308.2 252.5 (18.1)
Number of shares in issue as at 30 June 350.6 350.6
2007 (`million)
Notes:
1. Extracted from the published audited annual financial statements for the
year ended 30 June 2007;
2. The assets to be acquired in terms of the Oncology transaction are based on
the cost of the assets to be included in Onco and Powercliff in terms of
the agreements governing the transactions.
3. Transaction costs of R0.7 million relating to the Oncology transaction were
included in determining the financial effects.
4. At the effective date of the transaction an allocation of the purchase
consideration in terms of IFRS3: Business Combinations will need to be
performed.
5. On initial recognition of the Oncology transaction the call option will be
measured at fair value using an option pricing model. For the purposes of
these financial effects, based on the terms of the option and the expected
results of the Oncology business the call option is considered to be at
fair value.
6. No impact on EPS or HEPS has been shown as the Oncology business has yet to
trade and the inclusion of any figures could be misleading.
Transaction C) Co-pharma
The Co-pharma transaction should not have any significant financial effects
on Aspen, in terms of the JSE Listings Requirements definition.
Transaction D) Formule Naturelle
Actual Pro Forma Change %
"Before" "After" the
(1) Formule
Naturelle
transaction
(2,3,4,5,6)
EPS (cents) for the year ended 30 205.6 217.7 5.9
June 2007
HEPS (cents) for the year ended 30 210.1 209.2 -0.4
June 2007
NAV (cents) as at 30 June 2007 633.3 646.3 2.0
NTAV (cents) as at 30 June 2007 308.2 323.7 5.0
Number of shares in issue as at 30 350.6 350.6
June 2007 (`million)
Weighted average number of shares 348.9 348.9
in issue for the year ended at 30
June 2007 (million)
Notes:
1. Extracted from the published audited annual financial statements for the
year ended 30 June 2007;
2. The figures for the basket of nutraceutical products were extracted from
the unaudited management accounts of Pharmacare Limited for the year ended
30 June 2007;
3. On initial recognition of the Formule Naturelle transaction the put and
call options will be measured at fair value using an option pricing model.
For the purposes of these financial effects, based on the terms of the
options and the expected results of Formule Naturelle it is anticipated
that the put option will be exercised and the current fair value thereof is
R25.0 million. This amount has been credited to the income statement on a
pro forma basis.
4. Capital gains tax on the profit on the sale of the business and the value
of the put option has been included.
5. Transaction costs of R0.4 million relating to the Formule Naturelle
transaction were included in determining the financial effects.
6. As the proceeds of this transaction will be used to partly fund
transactions A and B, a notional interest saving at a pre-tax rate of
interest of 8.71% (being the average for the year ended 30 June 2007) has
been included in the financial effects.
VI CATEGORISATION
In terms of the Listings Requirements of the JSE Limited the Transactions
have been aggregated and are categorised as a Category 2 transaction.
Sponsor: Investec Bank
Date: 20/11/2007 11:05:01 Produced by the JSE SENS Department.
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