CVC puts $9b Recor­dati bid on hold

Fund is hes­i­tat­ing due to po­lit­i­cal un­cer­tainty and the huge sum de­manded by Recor­dati

Viet Nam News - - MARKETS -

LON­DON/MI­LAN — Buy­out fund CVC Cap­i­tal Part­ners held talks with Ital­ian drug­maker Recor­dati over a pos­si­ble eight bil­lion euro (US$9.4 bil­lion) takeover, but has put the deal on hold due to con­cerns about the hefty price tag and po­lit­i­cal un­cer­tainty, three sources fa­mil­iar with the mat­ter said.

Recor­dati, a fam­ily-owned maker of car­dio­vas­cu­lar and rare dis­eases drugs, is Italy’s big­gest listed phar­ma­ceu­ti­cal com­pany with a mar­ket value of 6.4 bil­lion eu­ros ($7.6 bil­lion).

The Recor­dati fam­ily, which con­trols about 51 per cent of the com­pany via their Fimei hold­ing, has been sound­ing out po­ten­tial bid­ders in the last two years fol­low­ing the death of the com­pany’s for­mer boss Gio­vanni in 2016, the sources said.

The fam­ily does not want to sell on the cheap. An eight bil­lion euro bid would im­ply a pre­mium of 25 per cent for the whole busi­ness, the sources said.

Lon­don-based CVC be­gan talks with Recor­dati last year but one of the sources said it de­cided to put the deal on hold shortly be­fore Italy’s na­tional elec­tions on March 4, which re­sulted in a strong show­ing for anti-es­tab­lish­ment par­ties and a hung par­lia­ment.

“There was mo­men­tum in ne­go­ti­a­tions in late 2017 but they waited too long. Right now there is no appetite to make big bets in Italy,” the source said.

CVC would need to bor­row cash to fi­nance a takeover of Recor­dati and raise ad­di­tional funds by dis­tribut­ing shares in the group to its own in­vestors - a task made more chal­leng­ing by Italy’s pro­tracted po­lit­i­cal stale­mate.

“Recor­dati would be a great in­vest­ment for CVC but it’s hard for them to jus­tify such a high price with the on­go­ing po­lit­i­cal un­cer­tainty,” the source said.

Fi­nan­cial mar­kets and in­vestors had been rel­a­tively re­silient dur­ing 10 weeks of in­con­clu­sive talks be­tween Ital­ian po­lit­i­cal par­ties seek­ing to form a gov­ern­ment.

That changed this week as the anti-es­tab­lish­ment 5-Star Move­ment and the far-right League neared a deal to form a coali­tion gov­ern­ment and chal­lenge Euro­pean fis­cal rules.

On Wed­nes­day, Italy’s bor­row­ing costs jumped and its stocks slid af­ter a draft pro­gramme for the po­ten­tial gov­ern­ment re­vealed plans to de­mand 250 bil­lion eu­ros of debt for­give­ness.

A sec­ond source with knowl­edge of the ne­go­ti­a­tions said the clouded po­lit­i­cal out­look had played a role in CVC’s de­ci­sion to sit on the fence for now, adding no other bid­ders were cur­rently in talks with the Recor­dati fam­ily.

CVC could re-ex­am­ine the deal once the po­lit­i­cal sit­u­a­tion sta­bi­lizes, the first source said.

CVC de­clined to com­ment, while Recor­dati was not im­me­di­ately avail­able for com­ment.

Recor­dati, led by Chief Ex­ec­u­tive An­drea Recor­dati and Chair­man Al­berto Recor­dati, was founded in 1926 and has rev­enues of 1.2 bil­lion eu­ros and net in­come of 288 mil­lion eu­ros. Al­most 80 per cent of its over­all rev­enues are made out­side Italy.

The Mi­lan-based com­pany em­ploys more than 4,000 peo­ple and op­er­ates in Western Europe as well as Rus­sia and var­i­ous Cen­tral and East­ern Euro­pean coun­tries, the United States, Canada, North Africa and Latin Amer­ica.

High val­u­a­tion

CVC, which raised a record 16 bil­lion eu­ros for its lat­est fund for pri­vate eq­uity in­vest­ments in Europe and North Amer­ica, has spent sev­eral months try­ing to “make the num­bers work”, one of the sources said.

It had ini­tially looked at the pos­si­bil­ity of merg­ing Recor­dati with generic drug firm Alvo­gen, an­other health­care busi­ness in its port­fo­lio, in a bid to cre­ate scale and ex­tract syn­er­gies, this source said.

Un­der the planned deal, CVC would have bought the Recor­dati fam­ily’s stake in the com­pany and then launched a manda­tory pub­lic of­fer on the re­main­ing shares, as re­quired by Ital­ian takeover rules. If suc­cess­ful, CVC would have de-listed the com­pany from the Mi­lan stock mar­ket.

Recor­dati shares have strongly out­per­formed the Euro­pean health­care sec­tor .SXDP in the last four years, al­most tre­bling their value, boosted by de­liv­ery on strong or­ganic growth and M&A.

Health­care com­pa­nies are typ­i­cally trad­ing at higher mul­ti­ples as the sec­tor is per­ceived as re­silient and re­ces­sion-proof. The in­dus­try has at­tracted a large slice of global M&A ac­tiv­ity this year, with Ja­pan’s Takeda re­cently clinch­ing a 45.3 bil­lion pound deal for Lon­don-listed Shire.

Pri­vate eq­uity funds have also tried to gain more ex­po­sure to the sec­tor with Lon­don-based buy­out fund Ad­vent re­cently en­ter­ing ex­clu­sive talks to buy Sanofi’s Zen­tiva Euro­pean gener­ics arm for 1.9 bil­lion eu­ros.

Last year a con­sor­tium of Bain Cap­i­tal and Ad­vent won a 5.4 bil­lion euro takeover quest for Ger­man generic drug­maker Stada that spanned for sev­eral months. — REUTERS

Recor­dati Pharma GmbH branch in Böfin­gen, Ger­many. — Photo mar­ketinsight.it

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