Bidding War for Stada Unlikely to Lift Price After Rally

  • Cinven’s bid is 68% above price prior to takeover rumors
  • Drugmaker can’t emulate biotechs with traditional drug lineup

Investors counting on a bidding war to drive up the price of German drugmaker Stada Arzneimittel AG well past its $3.66 billion in market value may be out of luck.

The German maker of generic medicines this week said it had two offers, including one from Cinven Ltd. valuing it at about 56 euros-a-share. And people familiar with the matter said other private equity firms including Bain Capital, Permira and CVC Capital Partners are closely monitoring the situation as they consider whether to bid.

But Stada, a traditional drugmaker from an ancient German spa town, may not command the lofty valuations of biotechnology stocks. It’s already taken nine months since takeover rumors first emerged -- stoked by the arrival of a new chief executive in June and changes to the company’s corporate governance -- for two formal bidders to emerge. Cinven’s offer, which represents a 68 percent premium over Stada’s average trading price in the 12 months to May, may be as good as it gets.

“It’s not a biotech stock,” said Samuel Stursberg, a portfolio manager at Bellevue Asset Management AG who helps oversee 200 million Swiss Francs in health care funds. “It’s not like they have a major project underway that offers tremendous potential.”

Different Animal

While biotech companies, which typically have a pipeline of experimental medicines that carry the promise of new revenue, command at least a 30 percent premium, Stada is in a different category, according to Stursberg. The maker of cheap copycat drugs is unlikely to be worth more than a 15 percent to 25 percent premium, he said, and much of that has already been built into the stock price with the 50 percent rally since May.

Christian Goertz, a Stada spokesman, declined to comment on whether the drugmaker has heard from other prospective bidders. On Monday, the company said it had initiated “open-minded talks” with Cinven and Advent International Corp. after receiving legally non-binding expressions of interest that offered “attractive opportunities.” A purchase of the business would offer access to German and Russian markets for over-the-counter and copycat medicines, and mark another step in the consolidation of the generics industry.

Buyout firms that are considering bids are talking to other private-equity bidders as well as companies about potentially teaming up, though no final decisions have been made, people with knowledge of the matter said.

Sharing Risk

For private equity firms, which usually invest up to about 60 percent of the deal value with their own funds and finance the rest with debt, the equity portion in Stada’s acquisition could be too rich to handle on their own, the people said. That’s why firms may partner with each other to relieve the pressure, they said.

Cinven’s bid, which values the business at about 3.5 billion euros ($3.7 billion), gave the stock a 12 percent jolt this week. In all, Stada has surged 51 percent since activist investor Active Ownership Capital Sarl began campaigning in May to overturn a rule it said gave Stada’s board undue influence over ownership of the company. The shares were little changed on Thursday, dropping 0.3 percent to 55.36 euros at 9:09 a.m. in Frankfurt trading.

The drugmaker probably doesn’t generate enough cash flow to be attractive to many private equity firms, according to Markus Manns, who helps oversee about 275 billion euros in assets at Union Investment GmbH.

“If you could split up Stada, that might be of value to buyers,” Manns said. But after the run up in the stock last year, the drugmaker “is probably worth less as a standalone firm than its market value today.”

As for other drugmakers, they may have been deterred by factors such as antitrust concerns, according to Stursberg. Polpharma SA of Poland, which contacted Stada last year and has talked to private equity bidders about partnering on the deal, may decide against pursuing a bid, people familiar with the matter said earlier this week. Sun Pharmaceutical Industries, Novartis AG, Mylan NV and Teva Pharmaceutical Industries Ltd. have been mentioned in the press as potential buyers in the past.

“If companies were interested, we would have heard more by now,” Stursberg said.

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