Aspen shares plunge to 2012 low; infant formula unit sale mired in scrutiny

By Janice Kew

(Bloomberg) – Aspen Pharmacare Holdings Ltd. shares plunged to a seven-year low as an already protracted deal to sell its infant-formula business dragged out even further, choking off cash flows and weighing on financing costs.

Africa’s biggest drugmaker announced the €740m ($829m) deal with French cheese maker Lactalis International in September, but completion of the sale has become mired in regulatory scrutiny. Investors had already been disappointed with the price, and Aspen shares have more than halved since the sale was disclosed.

Earnings before interest, taxes, depreciation and amortisation fell 3% to R5.5bn ($379m) in the six months through December, the Durban, South Africa-based company said in a statement after the market close in Johannesburg on Thursday. Earnings per share, excluding some items, slumped 9%.

“Gearing is much higher than expected as the deal is not completed and there’s weak cash flow conversion,” said Andre Bekker, a Johannesburg-based analyst at Arqaam Capital, which has its price estimate and rating on Aspen under review following the earnings.

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The shares slumped as much as 20% to R112.50 in Johannesburg, the lowest since March 2012, and traded 13% lower as of 9:13am.

The disposal of the infant-formula business, known as nutritionals, is to enable Aspen to focus on its main pharmaceutical operations. The company sells products such as hormones, anaesthetics and anti-retroviral medicines in more than 150 countries. The deal also reduces the drugmaker’s exposure to China, which has long been a target market.

In a shift in immediate focus away from Asia’s biggest economy, Aspen said Thursday its “most promising pipeline opportunities” in the next couple of years lie in selling women’s health products in the US. The company has reached a memorandum of understanding with a partner it didn’t name that will distribute Aspen products in that country, the firm said.

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Financing costs swelled to R1.2bn in the half year from R833m. Debt rose to R53.5bn.

“There is a definite change in strategy that is likely to concern the market,” Bekker said. Aspen has gone from talking about buying assets to possible disposals and focusing on de-gearing.”