ASPEN Pharmacare, the largest generic drug maker in Africa, is pursuing Sigma Pharmaceuticals of Australia at a price of more than R9 billion.
Should the deal be successful, it would be Aspen's largest acquisition based on price since it started its buying spree two years ago.
On Friday, Aspen proposed to buy Sigma - including its net debt of approximately R5.1bn - either directly or through a wholly-owned subsidiary. Aspen will pay 60 Australian cents (R3.92) for each of Sigma's 1.18 billion outstanding shares, or a 71.4 percent premium to Sigma's closing share price in Sydney on Thursday of A$0.35.
Aspen has been operating in Australia for the past nine years through a wholly-owned subsidiary that markets and distributes its products and also licenses products from other companies. It is one of the top 10 suppliers of medication (by number of prescriptions written) and generates annual sales of A$' million.
The non-binding proposal is expected to be executed by a scheme of arrangement, though the transaction structure may be refined following due diligence.
"The proposal is also subject to numerous conditions precedent, including the satisfactory completion by Aspen of a due diligence investigation, fulfilment of all necessary regulatory approvals and the unanimous recommendation of any potential transaction by the Sigma board," Aspen said.
Sigma manufactures and markets prescription, over-the counter and generic pharmaceutical products. The company was founded 98 years ago by two Melbourne pharmacists. Sigma merged with Arrow Pharmaceuticals in 2005.
In the year ended January, Sigma reported a A$389m loss. Bloomberg reported that the company lost more than half of its value after reporting this loss because of goodwill write-downs. Sigma chief executive Elmo de Alwis announced his resignation two weeks ago while Mark Smith, the chief financial officer, quit on May 13.
John Stocker, Sigma's chairman, announced on Thursday that he planned to step down.
Grant Lowton, a health care analyst at Kagiso Securities, said he believed that the market for generic medicine in Australia was growing quite well. "I hear that it is an underperforming business and I guess from a strategic point of view, Aspen management believes it can implement a turnaround strategy," said Lowton.
Aspen's footprint spreads from Brazil, Venezuela and Mexico to Kenya, Tanzania and Mauritius as well as Dubai, Germany and Hong Kong.
In the six months to December, the company's borrowings were down to R3.5bn and the gearing ratio improved to 29 percent from 51 percent.
Some of the transactions done by the company in the past two years include a R1.2bn purchase of a 50 percent stake in Strides Latina. Aspen also paid R2.7bn for intellectual property of four GlaxoSmithKline drugs for all major markets except the US and Japan. Aspen also acquired 60 percent of Shelys Africa for an undisclosed amount.
Sigma's shares surged 37 percent to A$0.48 on Friday, giving it a market value of A$566m.
On the JSE, Aspen rose during morning trade on Friday, reaching R77 at 11.26am. But at 5pm the shares closed at R74, 3.3 percent down on the day.