Aspen sells baby formula business
Drugmaker Aspen Pharmacare has agreed to sell its infant formula business to French dairy group Lactalis for R12.9bn, looking to capitalise on the sector’s recent flurry of deal-making to reduce its debt and focus on core operations.
Investors, however, appeared unimpressed with the price tag.
Shares in Aspen dropped more than 9% to R245.85 after Africa’s biggest manufacturer of generic drugs announced the deal as it reported full-year earnings.
Rising incomes in emerging markets coupled with global population growth have made infant formula an attractive proposition in a market dominated by Nestlé, Danone and Reckitt Benckiser, which acquired Mead Johnson of the US last year.
“The market expected Aspen to get $1bn to $1.5bn [R14.8bn to R22.2bn],” Cratos Capital equity trader Greg Davies said.
There was also some doubt over Aspen’s stated growth expectations, he said.
Aspen’s nutritionals business sells infant milk formula in the Asia-Pacific region, SubSaharan Africa and Latin America, and has been building a growing presence in the Middle East and China.
“The disposal is in line with our strategic intention to focus our attention on our core pharKong. maceutical business, which includes the anaesthetics, thrombosis and high potency and cytotoxic portfolios,” Aspen CEO Stephen Saad said.
“The heightened focus is expected to drive increased business efficiency and performance,” he said.
As part of the transaction, Lactalis will receive any intellectual property and goodwill now owned by Aspen Holdings and Pharmacare Ltd and Aspen Global Inc.
Aspen will also dispose of tangible assets and shares in companies conducting Aspen’s infant formula business across Asia-Pacific, including shares held by joint venture partners in New Zealand and Hong The deal would be funded with cash, Aspen said. The proceeds would reduce debt.
The deal was expected to close in the next six months.
Lactalis, at the centre of a health crisis when a salmonella outbreak at one of its factories led to dozens of babies falling ill in 2017, is a privately owned global leader in the dairy industry, achieving revenue of ß18.4bn (R315.3bn) from sales in more than 200 countries.
The French company said the deal reinforced the group’s desire to invest globally in the nutrition business and will boost its presence in Latin America, Africa, Australia and Asia.
Aspen’s infant formula business contributed R3.1bn to group revenue in the year to June 30.
The drugmaker posted full-year normalised earnings before interest, tax, depreciation and amortisation of R12bn, up 5%, helped by strong growth in China, inclusion of anaesthetics portfolios acquired the previous year and positive organic growth in commercial pharmaceuticals.