Australia’s Sigma Pharma Gets $570 Takeover Offer

MELBOURNE, May 21 (Reuters) – Troubled drug maker Sigma Pharmaceuticals (SIP.AX) said on Friday it has received a $570 million takeover offer, the second Australian healthcare firm put into play in a week, and sending its shares up 47 percent.

Sigma did not disclose the name of the bidder and advised shareholders to take no action.

Sigma is the largest player in Australia’s generic drug industry, a rapidly growing business but also one that faces increased regulation as the government seeks to trim the cost of its drug benefits scheme by cutting generic prices. 

“There is a question over the long-term profitability of those activities,” said a fund manager who asked not to be named as he was not authorised to speak to the media.

The offer is at A$0.60 per share, valuing the firm at A$707 million ($574 million), a 71 percent premium to Thursday’s close.

Sigma’s shares had tumbled to a record low of $0.34 this month, down from $0.90 in February before it revised its earnings guidance. Its 12-month high last July was A$1.28.

“I think a lot of people would be very glad to see 60 cents considering where it’s been trading. Whether it is enough to do the deal will be interesting,” the fund manager said.

The takeover approach comes just a week after private equity groups Carlyle [CYL.UL] and TPG [TPG.UL] bid for Australian hospital operator Healthscope (HSP.AX). That offer was raised on Thursday to A$1.8 billion ($1.5 billion) after talks with the target company’s board.

SHARES SURGE

Sigma’s shares surged 47 percent to A$0.515 after the news, its sharpest rise ever, in a broader market .AXJO down 2.3 percent.

Sigma has been plagued in the past month by the departure of its chairman, chief executive and chief financial officer. Sigma’s shares were suspended from trading for five weeks to March 31 as it reviewed its full-year guidance and made big writedowns on the goodwill of its generic drugs business.

Sigma then reported a A$390 million annual loss and its shares almost halved when they resumed trading. The company also said it had breached some borrowing covenants, but these had been waived and the facilities renegotiated.

Analysts have been expecting Sigma to sell some assets, including the Herron brand of pharmaceuticals, to help it avoid breaching debt covenants again.

Friday’s offer implies a price of 7.1 times expected earnings before interest, tax, depreciation and amortisation (EBITDA).

That compares with other large health sector deals in 2004 and 2006 of an average EBITDA multiple of about nine times, but that was during the bull market.

Thursday’s sweetened offer for Healthscope was worth about 9 times EBITDA, up from 8.7 times in the first approach by private equity groups..

Investment bank Lazard (LAZ.N) has been hired to advise Sigma.

($1=1.231 Australian Dollar)

By Victoria Thieberger
(Editing by Ed Davies and Dhara Ranasinghe)