Cipla, a leading Indian drugs company, has made a renewed bid to buy one of its customers, South Africa’s Cipla Medpro, in a deal worth R4.5 billion ($512 million). Medpro’s board of directors intends to recommend Cipra’s offer, which will be through a scheme of arrangement rather than a tender.
A shareholder meeting will be convened within the next three months, according to a person familiar with proposal, where a minimum 75% vote will be needed to support Cipla’s offer of R10 a share.
The price is 17% higher than the one made by Cipla late last year. In November 2012, it offered to buy 51% of Medpro at R8.55 a share, but the plan was put on hold after Medpro was awarded a R1.4 billion government drug contract
At the new price, the transaction multiple would be a little less than nine times trailing earnings (before interest, tax, depreciation and amortisation), said the person, and in line with comparable valuations.
Morgan Stanley is acting as financial adviser and Webber Wentzel is legal adviser to Cipla in connection with this transaction. Medpro is advised by Absa Capital.
Despite, the similarity of their names, there is currently no ownership relationship between the two pharmaceutical companies. Instead, there is a commercial link, with Cipla having a long-term agreement to supply Medpro with its drugs.
Cipla has been operating in India since 1935 and has established an extensive manufacturing presence throughout the country. It has more than 34 plants across India, and makes more than 2,000 products in 65 therapeutic categories, according to a statement by the company. It is India’s fifth-biggest drug-maker with a turnover of more than $1.4 billion and sells its medicines in over 170 countries.
“South Africa is an attractive emerging market with strong projected growth for generic drugs of approximately 14% per year for the next several years. This investment is aligned with Cipla’s strategy to ascend the value‐chain by managing a front-end sales force in a market outside India. Cipla and Medpro have enjoyed a long‐standing symbiotic relationship spanning two decades,” said Cipla chief executive Subhanu Saxena in a statement yesterday.
Medpro is the third-biggest pharmaceutical firm in South Africa, with a market capitalisation of more than R4 billion. It sells chronic medicines to the public and private sectors, specialising in cardiovascular, antiretroviral (ARV), respiratory and neuropsychiatric drugs. The company has two distribution centres in Cape Town, one in Durbanville and another in Atlas Gardens.
Medpro posted revenues of R1.08 billion in the first half of 2012 and R1.77 billion for the 2011 calendar year; its Ebitda for the those periods were R227 million and R594 million, respectively.
The proposed acquisition will be made either directly by Cipla or by a subsidiary and will be funded mostly through internal accruals, according to the company. It will be subject to regulatory approvals in India and South Africa.
Cipla shares rose by just under 1% in Mumbai yesterday.