Aspen shares leap after suitors’ offer
• Multinational SA company considers unsolicited offers for its active pharmaceutical ingredients operations
Aspen says it has received two unsolicited offers to buy parts of its global active pharmaceutical ingredients business, which manufactures active ingredients used in medications. Its share price closed 6.82% higher, giving Aspen a market value of R97.5bn.
Aspen says it has received two unsolicited offers to buy parts of its global active pharmaceutical ingredients (API) business, which manufactures ingredients used in medications. Its share price leapt the most in more than four months.
The manufacturing business has operations in SA, the Netherlands and the US, the company said. The offer excludes a French facility that also produces APIs.
In a statement on Thursday, Aspen said it would “embark on a structured process to facilitate offers for all or parts of its API business” before making a decision.
TURNAROND
Its entire API business, which contributes about two-thirds of the manufacturing business revenue, generated R6.4bn of its R37.8bn revenue in its 2021 financial year ending June 30.
Aspen, the multinational SA holding company for pharmaceutical concerns, and the largest drug company in Africa, has had a turnaround since 2018 when its debt reached highs of R46.7bn and its share price plunged after it embarked on acquisitions that diversified the company beyond its historic generics base.
Its debt now sits at a comfortable R16.3bn with its share price having risen more than 70% in 2021. On Thursday, it closed 6.82% higher at R213.50, giving it a market valuation of R97.5bn.
Selling some of its API divisions could free up working capital to cut debt further or expand in other areas. Last week, founder and CEO Stephen Saad said Aspen was interested in producing a range of vaccines for the African continent.
LONG CYCLE
Sasfin analyst Alec Abraham said the API business “is quite working-capital intense because of the long production cycle”. A lot of money is invested upfront, while the final sale of the products takes some time.
“So a disposal would free up cash resources caught up in working capital. This has two benefits: potentially reducing debt further, or giving the management more flexibility for M&A activity,” Abraham said.
Given that the two offers were unsolicited and that Aspen was considering them “suggests that they may be generous offers”, he said.
Aspen tended to prefer controlling all parts of the supply chain from producing the API as well as manufacturing the finished product, he said.
Selling some of its API manufacturing would mean a small deviation from the original strategy. If it sold, Aspen would have to buy APIs from the new business, making it more dependent on a third party. Abraham said Saad was adept at negotiating good supply contracts, and selling may reduce some of the complexity in its manufacturing business.
“If they get paid handsomely, why not sell it and get more M&A flexibility.”
One of the main APIs Aspen makes is Heparin, a bloodthinning drug, said Salmour
Research investment analyst Chris Gilmour. Aspen said in its June year-end financial results presentation that it has faced rising input costs in the production of Heparin. It also said costs related to Covid-19 restrictions affected its API manufacturing businesses as fewer staff were permitted in its factories.
Aspen has generated positive headlines as the only African manufacturer to be involved in Covid-19 vaccine production through a contract with Johnson & Johnson (J&J). That generated R400m in revenue in its latest financial year.
It is in talks with J&J on procuring a licence to manufacture the Covid-19 vaccine from start to finish in SA for African countries. Saad said Aspen wanted to expand its vaccine production and make other vaccines for the continent.
Aspen has grown into a global manufacturing pharmaceutical business through mergers and divestments. To reduce its debt, it sold its European thrombosis business to US pharmaceutical company Mylan in 2020 and disposed of its infant formula business in 2018.
Aspen’s share price fell to a low of about R65 in late 2019 when investor concern about its debt was high, and began to recover as it reduced borrowings.