Zentiva: further details on the Sicomed acquisition

Zentiva held a conference on the Sicomed acquisition yesterday. The company will finance the deal through CZK 4bn in debt (83% of the acquisition value with a pre-tax c3% p.a.). Zentiva should bring Sicomed’s gross margin to Zentiva’s level in three years via better material sourcing (using Zentiva’s APIs) and product portfolio improvement via selling higher margin own products. Sicomed should start generating positive operating cash flow in 2006. The agreement of Sicomend’s majority shareholder, Vedoma, on the purchase of the 51% stake is subject to approval by a meeting of Zentiva’s shareholders to be held October. We are currently revising our valuation of Zentiva. While are positive on the acquisition and its value creation for Zentiva, we note that Warburg Pincus may use the acquisition to drive momentum to reduce its 48% stake in Zentiva.