“Saturn” was the code name for Bain Capital and Cinven's attempt to take over Germany’s fourth largest pharmaceuticals maker, Stada. After four months of maneuvering, by the early hours of Monday morning, things had come down to a dramatic two-horse race between the two private equity firms, and a rival Anglo-American consortium of Boston-based Advent and London’s Permira.
Things seemed relatively clear when the Stada board gathered, at 9:30 P.M. on Sunday evening Frankfurt time, to weigh up the rival bids. Sources close to the board say Bain and Cinven were clear favorites, with a bid of €65 per share, or $68.80. But Advent and Permira upped the ante, prompting a further counterbid from Bain and Cinven. The deal was voted through by the supervisory board at 4.00 A.M. on Monday, with the board’s three worker representatives abstaining.
On Monday, the companies signed an investor agreement committed to an extensive set of guarantees. On the one hand, they promised a raft of protection measures for Stada employees, including promises to retain the company’s current headquarters and key units, and to respect current union pay deals, meaning no business-driven redundancies for the next four years. More positively, the financial investors promised financial and strategic support for possible acquisitions, new products, and expansion into new markets.
It is thought Cinven and Bain intend to use Stada as a platform to build a major pharmaceutical industry player.
Stada executives were at pains to emphasize the safeguards built into the deal, no doubt mindful of the reputation of private equity—and Bain and Cinven in particular—for radical cost-cutting, and for piling debt onto the companies they invest in. Stada chairman Carl Ferdinand Oetker said, “What was decisive was that we could convince the bidders of Stada’s potential, including its staff. We achieved this result because Bain and Cinven believe in our staff too, so they were ready to make concessions.”
At €66 per share, including dividend payments, the private equity houses values Stada at around €5.3 billion, including debt. The offer is a premium of almost 50 percent over the company’s valuation in December, when rumors of a takeover first surfaced.
One of Germany’s last remaining independent generic drug producers, based at Bad Vilbel, near Frankfurt, Stada reported sales of €2.2 billion last year, with strong volumes of over-the-counter remedies, including Grippostad, Germany’s best-selling cold remedy. The deal is the second-largest deal by private finance investors in Germany, coming in behind the 2015 takeover of the oil and gas company RWE DEA by Letter One Holdings.
Bain and Cinven will rapidly publish the official takeover offer. They seem overwhelmingly likely to achieve the necessary take-up of 75 percent: over the last months, the stock has largely been bought up by investors with exactly this scenario in mind—a quick sale and a clear profit. The investment banks are also thought to have done well out of the deal, with individual institutions issuing invoices of over €100 million. The deal will require regulatory approval, but this is unlikely to be problematic.
Cinven and Bain are expected to use Stada as a platform to build a major pharmaceutical industry player, combining it with other targets, as well as implementing cost-cutting to help pay for a deal described by one analyst as “very generous to Stada shareholders.”
However, even before the ink was dry on the deal, the new investors' long-term commitment was being questioned. The Stada chief executive refused to be drawn on how long he thought the new owners would stick around. “Bain and Cinven want to go with our growth strategy until at least 2021. But today is really not the time to engage in sales speculation,” he said.
The generic drug sector is in the midst of a deep wave of consolidation. At the beginning of the year, Sanofi took over Boehringer Ingelheim's consumer healthcare division. Other recent deals saw Israel’s Teva Pharmaceuticals buy Allergan’s generic drug business. German company Fresenius is in talks to buy Akorn, another American generic drug producer.
Stada has a rich history going back to 1895. In more recent years, its generic business has come under pressure as German health insurance companies push back on price, looking for bulk discounts from manufacturers. Last month, the company raised its financial goals for the coming years, looking to boost sales to around €2.7 billion in 2019, and earnings before interest, taxes, depreciation and amortization, to something approaching €590 million.
For Stada, the takeover is the logical conclusion of developments that began last summer. Back then, the financial investor Active Ownership Capital, or AOC, bought 5 percent of the company, and immediately began a loud campaign for change at the top, and substantial restructuring throughout the company. The focus of criticism was long-standing CEO Hartmut Retzlaff, accused of sloppy management culture which led to stagnation, ballooning costs, and strategic missteps.
Mr. Retzlaff was eventually pushed out in mid-August. Activist investors approached the company with restructuring plans and demands for new faces on the board. At the 2016 AGM, they largely got what they wanted, including a key change: limits on the transferability of Stada stock were lifted. Previously, senior management technically had a say in transfers of shares, a power Mr. Retzlaff used more than once to block takeover approaches.
Oetker ultimately did a good job. Maybe he was playing us all the time. Nice. Guy Wyser-Pratte, American activist investor in Stada
His successor, Matthias Wiedenfels, had a far more open attitude to potential buyers, but it is thought his target price was considerably lower than the ultimate €66 bid from Bain and Cinven. Chair Carl Ferdinand Oetker provided the steel in Stada’s negotiating team, coming out strongly against a takeover, whether for reasons of principle or tactics.
Speaking after the deal was agreed, Mr. Wiedenfels made it clear that the management strongly backed the project of releasing new value. “We decisively shaped Stada’s strategic change in recent months, and I absolutely believe in the potential for value growth in this company. We are confident we can do it, and we want to.”
After the deal was in the bag, Mr. Oetker in particular received warm words of praise from previously skeptical investors. “Oetker ultimately did a good job,” said American investor Guy Wyser-Pratte, who bought into Stada in 2016, and was among those pressing for a sale. “Maybe he was playing us all the time. Nice.”
Siegfried Hofmann is Handelsblatt's chemical and pharmaceutical industries correspondent. Robert Landgraf is Handelsblatt's chief correspondent for the financial markets. To contact the author: [email protected], [email protected]