URL https://www.reuters.com/article/us-aspen-pharmacare-results/drugmaker-aspen-sells-baby-milk-business-to-dairy-giant-lactalis-idUSKCN1LT2EM

DATE/ AUTHOR 2018-09-13 14:47:28+00:00	AUTHORS: Nqobile Dludla, Min Read

H Drugmaker Aspen sells baby milk business to dairy giant Lactalis

S1 JOHANNESBURG (Reuters) - Aspen Pharmacare has agreed to sell its infant formula business to Lactalis for 12.9 billion rand ($865 million) to focus on core activities while the French buyer looks to revive its baby milk expansion after a health scandal.

S2 Investors in the South African drugmaker appeared unimpressed, however, after expectations that the deal could top $1 billion.
S3 The company’s share price tumbled after the deal’s announcement on Thursday alongside full-year earnings, dropping 26 percent before paring losses to stand 16.3 percent down at 228.06 rand by 1430 GMT.

S4 Rising incomes in emerging markets coupled with global population growth have made infant formula an attractive proposition in a market dominated by Nestle, Danone and Reckitt Benckiser, which acquired Mead Johnson of the United States last year.

S5 “The market expected Aspen to get $1 billion to $1.5 billion dollars,” Cratos Capital equity trader Greg Davies said, adding that there is also some doubt over Aspen’s stated growth expectations.

S6 FNB Wealth and Investments portfolio manager Wayne McCurrie said a “second disappointment” concerned Aspen’s rising debt levels and whether Africa’s biggest manufacturer of generic drugs had been forced to sell the infant milk business to reduce gearing levels.

S7 “The market is worried that they took a decision just on debt and not on the growth prospects of the business, because this business looked quite good,” McCurrie said.

S8 “They were pumping it massively over the last year or so and all of a sudden say they are selling it.”

S9 Aspen CEO Stephen Saad said the disposal was in line with “our strategic intention to focus attention on our core pharmaceutical business, which includes the anesthetics, thrombosis and high potency and cytotoxic portfolios”.

S10 After 1.1 billion rand to be paid to partners in Asia-Pacific, Aspen will receive 11.8 billion rand, representing 23 times the unit’s earnings of 512 million rand, Deputy Chief Executive Gus Attridge said.

S11 CHANCE TO REBUILD

S12 For Lactalis, meanwhile, the deal represents an opportunity to rebuild its baby milk business after a salmonella outbreak at its production site in northwest France caused dozens of babies to fall sick and led to a global product recall.

S13 Lactalis is the world’s largest dairy firm, with annual sales of 18.4 billion euros ($21.4 billion), but baby milk has been a relatively small part of its activities and is now at a standstill after the health scare.

S14 The company’s head of communications, Michel Nalet, said the production halt in France was “one of the factors” behind the move for the Aspen business

S15 “In infant formula, we didn’t have a base outside France.
S16 We had the desire to be a global player in all dairy businesses,” he said.

S17 Aspen’s nutritionals business sells infant milk formula in the Asia-Pacific region, sub-Saharan Africa and Latin America, and has been building a growing presence in the Middle East and China.

S18 Privately owned Lactalis, which said the crisis could cost it hundreds of million of euros, decided the production line linked to the contamination should be closed permanently and is now awaiting permission from French authorities to restart output at its other production line.

S19 The acquisition will be funded with cash, Aspen said, adding that the proceeds will reduce its debt and that the deal is expected to close in the next six months.

S20 Lactalis will also receive any intellectual property and goodwill presently owned by Aspen Holdings and Pharmacare Ltd and Aspen Global Incorporated.

S21 Aspen’s infant formula business contributed 3.1 billion rand to group revenue in the year to June 30.

S22 The drugmaker posted full-year normalized earnings before interest, tax, depreciation and amortization of 12 billion rand, up 5 percent, helped by strong growth in China, inclusion of anesthetics portfolios acquired the previous year and positive organic growth in commercial pharmaceuticals.

S23 Aspen declared a dividend of 315 cents per share, up 10 percent.

S24 ($1 = 0.8601 euros)

S25 ($1 = 14.9147 rand)

