African drugmaker Aspen Pharmacare has agreed to sell its infant formula business to French dairy group Lactalis for R12.9 billion ($865 million), looking to capitalise on the sector’s recent flurry of dealmaking to reduce its debt and focus on core operations.
Investors, however, appeared unimpressed with the price tag. Shares in Aspen dropped more than 9% to R245.85 after Africa’s biggest manufacturer of generic drugs announced the deal as it reported full-year earnings.
Rising incomes in emerging markets coupled with global population growth have made infant formula an attractive proposition in a market dominated by Nestle, Danone and Reckitt Benckiser, which acquired Mead Johnson of the United States last year.
“The market expected Aspen to get $1 billion to $1.5 billion dollars,” Cratos Capital equity trader Greg Davies said, adding that there is also some doubt over Aspen’s stated growth expectations.
Aspen’s nutritionals business sells infant milk formula in the Asia-Pacific region, Sub-Saharan Africa and Latin America, and has been building a growing presence in the Middle East and China.
“The disposal is in line with our strategic intention to focus our attention on our core pharmaceutical business, which includes the anaesthetics, thrombosis and high potency and cytotoxic portfolios,” Aspen CEO Stephen Saad said in a statement.
“The heightened focus is expected to drive increased business efficiency and performance.”
As part of the transaction, Lactalis will receive any intellectual property and goodwill presently owned by Aspen Holdings and Pharmacare Ltd and Aspen Global Incorporated.
Aspen will also dispose of tangible assets and shares in companies conducting Aspen’s infant formula business across Asia-Pacific, including shares held by joint venture partners in New Zealand and Hong Kong.
The deal will be funded with cash, Aspen said, adding that the proceeds will reduce debt and that the deal is expected to close in the next six months.
Lactalis, which was at the centre of a health crisis when a salmonella outbreak at one of its factories led to dozens of babies falling ill last year, is a privately owned global leader in the dairy industry, achieving revenue of 18.4 billion euros ($21.4 billion) from sales in more than 200 countries.
The French company said the deal reinforces the group’s desire to invest globally in the nutrition business and will boost its presence in Latin America, Africa, Australia and Asia.
Aspen’s infant formula business contributed R3.1 billion to group revenue in the year to June 30.
The drugmaker posted full-year normalised earnings before interest, tax, depreciation and ammortisation of R12 billion, up 5%, helped by strong growth in China, inclusion of anaesthetics portfolios acquired the previous year and positive organic growth in commercial pharmaceuticals.
Aspen declared a dividend of 315 cents per share, up 10%.