Tuesday, May 28, 2013

Will Sun Acquire Stada?

Stada is the fifth largest generics company globally, with sales of €1.7bn in 2010. The company is the third-largest generics manufacturer in Germany behind Teva / Ratiopharm and Sandoz, with around 13% market share.  It has experienced significant pressure on its business from German healthcare reform over the last

two years, which has led to the ‘Build the Future' restructuring programme. This aims to simplify the group's operating structure and optimise costs in the areas of sales and manufacturing.

Stada’s share price has appreciated ~70% since hitting a two-year low in Oct-11 and the current  EV of the company is about $3b (M.Cap - $1.8b, LT Debt of $1.4b, Cash $200m).   

With $1billion cash in hand, the size of the transaction is significantly large for Sun Pharma , but not out of reach. Also in line with Sun Pharma tradiiton of buying assets in distress and turning them around, the target looks very appropriate. Sun Pharma may leverage its premium valuation and opt in for a merger to partly or fully offer its shares as compensation to Stada Shareholders.

Germany based and has 69% of its sales coming from Generics. In 2011, the annual sales of the company were euro 1.72billion, while Net Income was just euro 22 million. Stada has a strong presence in Europe and is focussing on Eastern european markets and international markets for growth. Despite STADA's international expansion, Germany remains its biggest market, contributing 28% of sales
As part of the Long-term targets (for 2014), Stada is targeting Group sales of approx. EUR 2.15 billion, adjusted EBITDA of approx. EUR 430 million and adjusted net income of approx. EUR 215 million

Alternate Assets that Sun can Target 

The other companies that Sun Pharma may seek to acquire could be Hungary based Richter Gedeon or Egis Pharma, bot of which are trading at reasonable valuations when compared to peer group companies in the same space. The large European generic companies trade at an average Price earning multiple of 19 x 2012 earnings. In contrast Sun Pharma is trading at 29x earnings. Hence assuming a reasonable premium ( 30%), any transaction that Sun is likely to enter into, will be significantly acretive for shareholders

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