Hot buyout target Stada rolls out cost-cutting measures, new financial forecasts to draw higher bids

Stada
Stada now expects its 2019 adjusted EBITDA to hit between €570 million and €590 million.

The bidding war for Germany’s Stada is heating up, with private equity firms, Chinese drugmakers and others rumored to be in the mix. But their offers so far aren’t high enough to woo the company, which is rolling out cost-cutting measures and new guidance in an attempt to bring in larger bids.

Friday, the company upped its 2019 adjusted EBITDA target, taking it from a range of  €570 million to  €590 million ($612.8 million to $634.3 million) from a previously predicted  €510 million ($548.3 million). It also brought its sales target to between €2.65 billion and €2.7 billion ($2.85 billion to $2.9 billion) from the €2.6 billion ($2.8 billion) it earlier outlined, and it laid out changes that would help streamline its processes and squeeze out cost savings.

Among them: Optimizing its supply chain management and procurement process and organization, from which it expects “significant savings potential,” the company said in a statement. It’s also looking at longer-term measures to bring its internal production costs down a notch, including the rollout of a global production system.

The revamped forecasts and cost-cutting moves are part of an effort to bring in bigger buyout offers from the group of interested parties eyeing the German generics maker. That group for sure includes PE outfits Advent International—which has already bid—and Cinven. But reportedly drugmakers such as Shanghai Pharmaceuticals also are interested.

Why all the attention coming Stada’s way? The potential for even further cost-cutting and earnings-boosting. Stada’s three-year average operating profit margin currently sits at 11%, Bloomberg notes, ranking it among the lowest worldwide for generics players. Streamlining manufacturing, breaking up the business and laying off employees could all be options for buyers trying to wring out savings.

And for PE players, teaming up with drugmakers on bids—as some of Stada’s suitors are reportedly looking to do—could enhance their cost-cutting options even further.

Stada, though, isn’t going to give them the chance unless the price is right. Earlier this week, company chairman Carl-Ferdinand Oetker, the leader of a supervisory board committee to oversee the bidding process, urged execs to make edits that would help bolster Stada’s profit guidance, Bloomberg reports. His committee also refused to approve additional due diligence from interested bidding groups, and earlier this week execs canceled planned presentations to them accordingly.

“The indicative bids do not yet reflect the fundamental value of Stada. Thus, the company, for the time being, wants to provide the bidders the opportunity to increase their offers,” the company said in a Thursday statement on the negotiation delay.

So far, Advent has pledged €58 ($62.36) per share, but some industry watches expect that number to climb as high as €60 ($64.51).