Acquisition of Sigma Pharmaceuticals Limited by Aspen
16 August 2010
By : Shauneen Beukes
ASPEN PHARMACARE HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1985/002935/06)
Share code: APN ISIN: ZAE000066692
ANNOUNCEMENT REGARDING THE ACQUISITION OF THE PHARMACEUTICAL BUSINESS OF SIGMA PHARMACEUTICALS LIMITED ("SIGMA") BY ASPEN
Aspen shareholders are referred to the detailed cautionary announcement released on the Securities Exchange News Service of the JSE Limited ("SENS") on 21 May 2010, and to the related renewal and further cautionary announcements dated 7 July 2010 and 12 July 2010, respectively ("Cautionary Announcements"). Subsequent to the completion by Aspen of the due diligence process referred to in the Cautionary Announcements, Aspen Global Incorporated ("Aspen Global"), a 100% owned subsidiary of Aspen, submitted, to the Board of Directors of Sigma ("Sigma Board"), an offer ("Subsequent Offer") to acquire the pharmaceutical business conducted by Sigma ("Pharmaceutical Business") on a debt-free basis for a cash consideration of A$900 million (approximately ZAR5 871 million ). The Subsequent Offer, which the Sigma Board has undertaken to support, is subject to limited conditions precedent as detailed in paragraph 4.4 below.
2. DESCRIPTION OF SIGMA AND THE BUSINESS
Sigma is a leading Australian Securities Exchange ("ASX") listed Australian manufacturer and marketer of prescription, over-the-counter ("OTC") and generic pharmaceutical products as well as a wholesale distributor of pharmaceutical and consumer products.
The Pharmaceutical Business consists of the manufacture and marketing of pharmaceutical products. It has an extensive product portfolio comprising many well-known and trusted Australian brands which recorded sales revenue of A$671 million in the year to 31 January 2010. The generics range has approximately a 25% share of the growing Australian generics sector. The Pharmaceutical Business is also Australia's largest pharmaceutical manufacturer.
For further details on the Pharmaceutical Business, Aspen shareholders are referred to www.sigmaco.com.au.
3. RATIONALE FOR THE SUBSEQUENT OFFER
Aspen has an existing operation in Australia ("Aspen Australia"), marketing and distributing pharmaceutical and consumer products. Established in 2001, Aspen Australia has an excellent record of growth with revenue of approximately A$180million recorded in the year to 30 June 2010. Aspen Australia's success has been achieved by sound management supported by an outstanding team which has consistently built Aspen's product offering and reputation in Australia. The implementation of the Subsequent Offer creates the following opportunities:
- Synergies arising out of the consolidation of Aspen Australia and the Pharmaceutical Business;
- An established point of entry to the Australian generics and OTC sectors for the introduction of Aspen's pipeline of generic and OTC products;
- Strengthening Aspen's position in the Australian market which will form the foundation for further development of Aspen's business in the Asia Pacific region; and
- Incorporation of Australian manufacturing presence into Aspen's global manufacturing capabilities.
Aspen Global's initial approach to Sigma referred to in the Cautionary Announcements was for the acquisition of the entire business of Sigma, including the wholesale business. The Subsequent Offer means that Sigma will continue as an ASX listed company focused on the wholesaling business. The construction of the Subsequent Offer was framed after lengthy engagement with Sigma and recognizes that Sigma possesses the critical skills to optimize the performance of the wholesaling business, an activity in which Aspen does not have past experience. Furthermore, the consideration received by Sigma for the Pharmaceutical Business will allow it to establish a firm capital base from which to ensure an efficient business model. In recognition of this, the Pharmaceutical Business will commit to a long term supply, distribution and logistics arrangement with Sigma.
4. DETAILS OF THE SUBSEQUENT OFFER
4.1 Terms of the Subsequent Offer
In terms of the Subsequent Offer, Aspen Global, or an entity nominated by Aspen Global, will acquire the Pharmaceutical Business, by acquiring either the business conducted by the Pharmaceutical Business or the shares in the subsidiaries of Sigma that carry on the Pharmaceutical Business and/or hold assets of the Pharmaceutical Business, or a combination of the aforementioned, for a cash consideration of A$900 million (approximately ZAR5 871 million1) on a debt-free basis.
In terms of the Subsequent Offer, Sigma, which has agreed to deal exclusively with Aspen until 15 October 2010, will also accept a non-compete clause with the Pharmaceutical Business for a period of two years.
The Subsequent Offer will be funded out of Aspen's available cash resources as well as cash to be raised from its bankers.
4.3 Effective date
The effective date of the implementation of the Subsequent Offer will be upon completion of the conditions precedent.
4.4 Conditions precedent
The completion of the Subsequent Offer is subject to the satisfactory conclusion of limited conditions precedent which are normal for a transaction of this nature, including:
- conclusion of a Business and/or Share Purchase Agreement between Aspen and Sigma;
- all requisite regulatory approvals; and
- the approval of Sigma shareholders.
5. PRO FORMA FINANCIAL EFFECTS
The unaudited pro-forma financial effects set out in the table below have been prepared to assist Aspen shareholders to assess the impact of the Subsequent Offer on the earnings per share ("EPS") and headline EPS ("HEPS") for the 6 months ended 31 December 2009, and the net asset value ("NAV") per Aspen ordinary share as at 31 December 2009. The pro-forma financial effects have been prepared for illustrative purposes only and because of their nature, may not fairly present the effects of the Subsequent Offer on Aspen's results of operations for the 6 months ended and the financial position at 31 December 2009. The Pharmaceutical Business results used are for the 6 months ended 31 January 2010.
The Directors of Aspen are responsible for the preparation of the financial effects, which have not been reviewed by the auditors.
For the six months ended 31 December 2009
For the six months ended 31 December 2009
(cents) (1,3,8) Pro-forma "After" the Subsequent Offer
(cents) % Change2
(cents) (1,3,8) Pro-forma "After" the Subsequent Offer (1,2,5,6,7)
(cents) % Change2
EPS 240.58 (134.36) (155.8) 240.58 252.54 5.0
HEPS 242.32 (132.61) (154.7) 242.32 254.28 4.9
NAV 2,192.98 2,192.98 0.0 2,192.98 2,192.98 0.0
1. Extracted from the published unaudited financial results of Aspen for the six months ended 31 December 2009.
2. The "After" columns represent the effects after the Subsequent Offer. The "% Change" columns compares the "After" columns to the "Before" columns.
3. It has been assumed for the purposes of the pro-forma financial effects that the Subsequent Offer took place with effect from 1 July 2009 for EPS and HEPS purposes, and at 31 December 2009 for balance sheet purposes.
4. The Pre-adjustment financial information for the Pharmaceutical Business for the six months ended 31 January 2010 as reported by Sigma and adjusted for interest expense to reflect that the Pharmaceutical Business will be acquired on a debt-free basis.
5. The Post-adjustment financial information for the Pharmaceutical Business was calculated after reversing once-off income statement items of R1 537 million (A$230million) from the Pre-adjustment financial information as reported by Sigma and adjusted for interest expense to reflect that the Pharmaceutical Business will be acquired on a debt-free basis.
6. The average AUD/ZAR exchange rate for the 6 months ended 31 January 2010 of 0.14938 was used to translate the earnings and headline earnings of the Pharmaceutical Business into ZAR. The spot AUD/ZAR exchange rate as at 31 January 2010 of 0.14940 was used to translate the NAV of the Pharmaceutical Business.
7. A notional interest charge at a pre-tax rate of interest of 9.6% on the value of the Subsequent Offer has been included in the financial effects.
8. The number of Aspen shares in issue of 431.591 million at 31 December 2009, and the weighted average number of Aspen shares of 367.037 million for the 6 months ended 31 December 2009, have been stated net of treasury shares.
9. Sigma did not separately disclose the value of Tangible Net Asset Value for the Pharmaceutical Business at 31 January 2010. Accordingly, the effects of the Subsequent Offer on the Tangible Net Asset Value per Aspen share have not been separately disclosed.
6. CATEGORISATION AND WITHDRAWAL OF CAUTIONARY
An announcement has been released today in terms of the ASX regulations by Sigma and is available at the ASX website at www.ASX.com.au.
The Subsequent Offer has been classified as a category 2 transaction in terms of section 9.5(a) of the JSE Limited Listings Requirements. The cautionary announcement dated 12 July 2010 is hereby withdrawn. Accordingly, Aspen shareholders are no longer required to exercise caution when dealing in Aspen shares.