Acino announced this morning that it is to pay €80m for the MENA assets of Cephalon, the acquisition of which by Teva also closed today. As an Israeli company, Teva is precluded from operating in a number of Middle Eastern territories, and clearly decided that it made more sense to sell Cephalon’s business in the MENA region as a package rather than trying to make piecemeal disposals in particularly unwelcoming locations. Acino is therefore getting some €100m of sales (which will practically double its total turnover) and approximately €18m of EBITDA, for which it is handing over €60m in cash and a further €20m in the form of shares being issued from authorised capital. As a result, Cephalon (now Teva) will become a c8% shareholder in Acino, which will give it some influence – albeit not much – on what happens to its divested assets next. On the face of it, Acino is paying a knock-down price, particularly considering that there was a competitive auction for the business, so we presume that there were some specific factors at work, one being that it plays a lot better in Switzerland to have a Swiss buyer for what are seen as Swiss assets. This matters to Teva because in Europe, a large part of Cephalon’s business actually consists of the Swiss company Mepha, which was bought by Cephalon from the Merckle Group in February 2010. The MENA business that is being sold now is thus, in fact, a part of Mepha and not of Cephalon per se, although it does sell some legacy Cephalon products.
Mepha’s portfolio in MENA is very concentrated in terms of products but highly dispersed when it comes to location. The biggest markets in which it operates are Saudi, Iraq, the UAE, and Kuwait, but is also has respectable sales in French West Africa and a small business in East Africa. Acino itself is already making product registrations in most of these locations, so it will now be able to push its own pipeline through the sales network that it has acquired – Mepha has sales reps in its bigger territories and good relationships with distributors in others. From a product perspective, Olfen (diclofenac) is the most important Mepha brand in the region, with others being the Cephalon anti-spasmodic Spasfon and Mepha’s branded omeprazole, Gasec. In addition, Mepha sold a number of antibiotics (particularly in the Gulf) and also (in French West Africa) anti-malaria products. In general, the MENA markets are growing rapidly, but they do have some risks attached. In the UAE, for instance, efforts are being made to convert to an INN model and away from branding, while Iraq is currently developing very quickly but is not particularly stable. The Saudi market is also undergoing changes, and Acino will be quite vulnerable to any moves that impact prices or prescribing trends here, as this market will comprise a meaningful proportion of its consolidated sales in future.
In financial terms, this is a great deal, but it also transforms Acino from an API supplier to a fully-integrated generics company with a front end operation in some of the more interesting markets of the world. The purchase will be highly earnings accretive and will, in one step, take Acino away from the recent history of its catastrophic (and expensive) recall of its biggest API, clopidogrel and into a new era as an emerging markets player. Having Teva as a shareholder as well as a major customer may be a slight nagging worry, but more due to the possibility that Teva will dump its stock than for any other reason, since it can hardly take control of Acino or it would be back to square one. Acino’s shareholders certainly appear to be happy, since its share price is up nearly 20% on the day, marking another positive change from the past.
Posted on 14th October 2011