Aspen sells SA unit for R1.6bn

Litha buys business division

ASPEN Pharmacare has sold its portfolio of branded and generic injectables and established products focused on pain and anti-infectives for R1.6 billion to Litha Pharmacare, a unit of US pharmaceutical company Endo International.

The deal is part of Aspen’s strategy to simplify its business and is a boost for Endo’s local footprint.

Aspen, which supplies branded generic products to 150 countries, said the unit had recorded a R362 million revenue and a direct contribution to profit before tax of R136m for the year to June 2014.

“The transaction forms part of Aspen’s communicated strategic intent to focus attention in areas where most value can be added and to lessen complexity,” the company said.

Regulatory hurdles

The transaction is subject to approval from South African competition authorities, and is likely to be completed in June.

It takes place against the backdrop of an ailing pharmaceutical industry as a strong dollar environment weighs heavily on performance.

André Bekker, an Avior Capital Markets analyst, said the deal was encouraging for Aspen. “This deal is positive as it is selling off the South African business with US dollar costs in an environment of a stronger US dollar.”

Bekker said Aspen in South Africa manufactured drugs in an environment where the underlying ingredients were priced in US dollars.

“This then, in a rising US dollar environment, puts pressure on South African margins,” Bekker added.

In the six months to December, Aspen reported strong results despite foreign exchange losses of R343m caused by the strong dollar relative to the group’s major trading currencies. This was estimated to have reduced earnings per share by 67 cents.

Gross revenue rose by 47 percent to R19bn and operating profit was 50 percent higher at R4.3bn in the six months to December, supported by the contribution from acquisitions concluded in the prior year.

Portfolio

Rajiv De Silva, the president and chief executive of Endo, said the acquisition would boost its footprint in South Africa, as well as its earnings.

“With the acquisition of these products from Aspen Holdings, Endo continues to grow, diversity and optimise its international portfolio and, specifically, further expand its reach into hospital and pharmacy markets in South Africa,” De Silva said.

Aspen would receive a onetime payment of $130m (R1.5bn) subject to usual and customary closing adjustments.

“The portfolio of products to be acquired from Aspen Holdings will be incorporated into Endo’s Litha Healthcare Group portfolio and is expected to increase Litha’s pro-forma 2015 revenues by 30 percent and pro-forma pharmaceutical product revenues by 60 percent,” the company said.

Endo said it anticipated that earnings before interest, tax, depreciation and amortisation (Ebitda) generated by the acquired portfolio would translate into a transaction multiple of less than 10 times Ebitda on a post-synergised basis.

“The transaction underscores and helps to deliver upon Endo’s strategy of building its international pharmaceuticals business unit through acquisitions.”

The firm aspires to grow its international business to represent 25 percent of Endo’s corporate revenues in the longer term.

Aspen’s shares yesterday closed 0.29 percent lower at R355.