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Pliva: hostile takeover target

20.3.2006 8:57
Autor: KBC/Patria

Actavis Group, world's fourth largest generics producer, announced on Friday that it has submitted a preliminary proposal to the management of Pliva, Croatian generic pharmaceuticals company, to acquire all the outstanding Pliva shares on the Zagreb Stock Exchange and all the PLIVA GDRs on the London Stock Exchange. The preliminary proposal has been made in cash at a price of HRK 570 per share, representing a 35% per cent premium over the average Pliva share price during the last three months. The preliminary proposal values Pliva at approximately US$1.6 billion or HRK 570 per share and USD 18.8 per GDR. Actavis said that the acquisition is a good opportunity to expand geographically, as Pliva’s Central and Eastern European foothold could complement their business.

It is not a surprise that Pliva is an acquisition target, as other regional listed drug producers already have strategic owners or more difficult to acquire: Richter is saved from any takeover attempt until November 2009, the expiry of its convertible bond program, while Krka is also very difficult to acquire due to the control of Slovenian pension funds. Czech Zentiva, however, could also be an acquisition target, if financial investor Warburg Pincus succeeds in finding the right potential buyer.

Note that as Pliva's profitability is very low, it is hard to judge the valuation of the deal. We tried to make a Price/Sales calculation, which we believe, should be a more accurate indicator than a P/E based comparison. Taking into account Pliva's generics and API sales, P/S resulted in a 1.8x for 2005, versus Richter's current valuation of 5.3x. However, on 2006 P/E basis, (using Bloomberg EPS consensus) the offer came at almost 25x, well above Richter's 16.7x (price at HUF 42900, 2006F EPS at HUF 2,565).

The main question now is what the reaction of the shareowners could be to the offer. Since the available target prices on Bloomberg (only two) are lower than the price offered by Actavis, many might see the offer as fair and could decide to offer their stakes. On the other hand, Pliva published a statement after it has received the indicative non-binding proposal from Actavis that they believe the offered price does not reflect the fundamental values of Pliva.

As there are arguments on both sides, we would highlight how easy it would be to get a larger stake in Pliva. We would also highlight that various funds of Templeton hold c 10% stake in the company in the form of GDRs. This fund is known for acquisition speculations; they buy up one company's shares and sell it in a block to a strategic investor. Secondly, a large stake (17%) is in the hands of the Croatian Pension Fund, but their intentions are unclear to us.

Until we have more information, it is hard to judge the offer. However, we currently tend to view it as positive and recommend owners to accept it once it becomes official.

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