By Tiisetso Motsoeneng
JOHANNESBURG, July 7 (Reuters) - While few investors dispute the logic of Aspen Pharmacare's bid for Australia's debt-laden Sigma Pharmaceuticals, qualms about the price on both sides could sink the $552 million deal.
South Africa's Aspen on Wednesday cut its offer for Sigma by 8 percent to A$648 million ($552 million), or A$0.55 per share, after reviewing Sigma's books and requesting more time for due diligence.
Shares in Sigma, Australia's generic drugs market leader, rose 14 percent to A$0.45 after the announcement but remained well below the reduced offer price, a sign investors think the deal may not go through.
Analysts say Aspen, which is keen to expand in Australia, may have a battle convincing shareholders that Sigma is worth the price. At the same time, Sigma's board will have a hard time swallowing an offer that is less than half of what the shares were fetching just a year ago.
'Yes, I think the price could break or make this deal. On the face of it, it looks like Sigma will probably resist this opportunistic offer,' said a Johannesburg-based analyst, who declined to be identified.
Sigma's shares have been battered by a A$390 million annual loss, management resignations and writedowns of its generics business.
Aspen, which is about 19 percent owned by the UK's GlaxoSmithKline Plc, originally bid A$0.60 per share in May.
Wednesday's lower offer came after Aspen reviewed Sigma's books and after the Australian company last week further wrote down the value of its generics business and said the tough environment is likely to continue until 2012.
Sigma's troubles put Aspen in the difficult position of justifying what appears to be a premium price to its shareholders.
'Shareholders in Aspen will not look kindly on management if they overpay for what, essentially, amounts to second-tier assets,' said Nino Frodema, a portfolio manager at Metropolitan Asset Management.
EYES ON AUSTRALIA
Sigma's board has asked shareholders not to take any action on the new offer for now, and said the company will make an announcement later.
Aspen is keen to expand in Australia, where it has been doing business since 2001 but is still a minor player. Sigma controls about a quarter of Australia's generic drugs market, making it the market leader.
The acquisition would also give Aspen better access to fast-growing Asian markets.
Another analyst, who also declined to be identified, said the deal was 'decent' because Aspen understands Australia's market and regulations.
'I think at the right price they would take it and probably use it to explore new markets in the region,' the analyst said.
One source of comfort for shareholders may be Aspen's senior management, which owns about 20 percent of the company and has a track record for crafting valuable deals.
'If you look at the shareholding of Stephen Saad (Aspen's CEO) and other senior management, it gives me enough confidence that they would make the right decision,' said Sasha Naryshkine, an analyst at Vesact Asset Management in Johannesburg.
'I don't think they would do a dumb deal.'
(Editing by David Dolan and Erica Billingham) (For more Africa cover visit: http://af.reuters.com/ -- To comment on this story email: SouthAfrica.Newsroom@reuters.com) Keywords: SIGMA ASPEN/ (tiisetso.motsoeneng@thomsonreuters.com; +27 11 775 3122 Reuters Messaging: tiisetso.motsoeneng.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
JOHANNESBURG, July 7 (Reuters) - While few investors dispute the logic of Aspen Pharmacare's bid for Australia's debt-laden Sigma Pharmaceuticals, qualms about the price on both sides could sink the $552 million deal.
South Africa's Aspen on Wednesday cut its offer for Sigma by 8 percent to A$648 million ($552 million), or A$0.55 per share, after reviewing Sigma's books and requesting more time for due diligence.
Shares in Sigma, Australia's generic drugs market leader, rose 14 percent to A$0.45 after the announcement but remained well below the reduced offer price, a sign investors think the deal may not go through.
Analysts say Aspen, which is keen to expand in Australia, may have a battle convincing shareholders that Sigma is worth the price. At the same time, Sigma's board will have a hard time swallowing an offer that is less than half of what the shares were fetching just a year ago.
'Yes, I think the price could break or make this deal. On the face of it, it looks like Sigma will probably resist this opportunistic offer,' said a Johannesburg-based analyst, who declined to be identified.
Sigma's shares have been battered by a A$390 million annual loss, management resignations and writedowns of its generics business.
Aspen, which is about 19 percent owned by the UK's GlaxoSmithKline Plc, originally bid A$0.60 per share in May.
Wednesday's lower offer came after Aspen reviewed Sigma's books and after the Australian company last week further wrote down the value of its generics business and said the tough environment is likely to continue until 2012.
Sigma's troubles put Aspen in the difficult position of justifying what appears to be a premium price to its shareholders.
'Shareholders in Aspen will not look kindly on management if they overpay for what, essentially, amounts to second-tier assets,' said Nino Frodema, a portfolio manager at Metropolitan Asset Management.
EYES ON AUSTRALIA
Sigma's board has asked shareholders not to take any action on the new offer for now, and said the company will make an announcement later.
Aspen is keen to expand in Australia, where it has been doing business since 2001 but is still a minor player. Sigma controls about a quarter of Australia's generic drugs market, making it the market leader.
The acquisition would also give Aspen better access to fast-growing Asian markets.
Another analyst, who also declined to be identified, said the deal was 'decent' because Aspen understands Australia's market and regulations.
'I think at the right price they would take it and probably use it to explore new markets in the region,' the analyst said.
One source of comfort for shareholders may be Aspen's senior management, which owns about 20 percent of the company and has a track record for crafting valuable deals.
'If you look at the shareholding of Stephen Saad (Aspen's CEO) and other senior management, it gives me enough confidence that they would make the right decision,' said Sasha Naryshkine, an analyst at Vesact Asset Management in Johannesburg.
'I don't think they would do a dumb deal.'
(Editing by David Dolan and Erica Billingham) (For more Africa cover visit: http://af.reuters.com/ -- To comment on this story email: SouthAfrica.Newsroom@reuters.com) Keywords: SIGMA ASPEN/ (tiisetso.motsoeneng@thomsonreuters.com; +27 11 775 3122 Reuters Messaging: tiisetso.motsoeneng.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.