Aurobindo Pharma, Sandoz Terminate U.S. Dermatology, Oral Solid Businesses Deal
The deal was terminated as the companies did not get the U.S. Federal Trade Commission’s approval within anticipated timelines.
Aurobindo Pharma Ltd. said it reached a mutual agreement with Sandoz Inc. to terminate the deal to acquire the Novartis AG subsidiary's generic oral solids and dermatology businesses in the U.S.
The decision was taken as the companies did not get the U.S. Federal Trade Commission's approval within anticipated timelines, the Hyderabad-based company said in an exchange filing. In February, the company in its October-December quarter earnings conference call had said that they expected the deal closure in a few weeks.
Aurobindo Pharma had entered into an agreement to acquire Sandoz's commercial operations and three manufacturing facilities in the U.S. for $900 million in September 2018. The acquisition was proposed to be done in an all-cash basis, without taking in any cash or debt from the acquired business. The deal terms also envisaged additional potential earn-outs for Aurobindo Pharma in the outer years. The deal was to be funded via debt, as per the company.
Analysts’ View
The deal termination will impact Aurobindo Pharma's near-term earnings per share, Vishal Manchanda, pharma analyst at Nirmal Bang Institutional Equities, told BloombergQuint on the phone. The upside is that the balance sheet will remain lean, as external debt would have been needed to complete the acquisition, he added. Aurobindo Pharma had Rs 6,077 crore debt and Rs 2,134 crore cash on books, as per its balance sheet at the end of the September quarter.
The deal was critical for Aurobindo Pharma as it is currently very U.S. dependent, and its termination could lead to a derating, Param Desai, pharma analyst at Elara Capital, told BloombergQuint. Leverage not rising is a positive, according to Desai, but he expects the stock to react negatively on Friday.
Despite a 33 percent recovery in March, the stock is still 35 percent lower than the high it hit in February. Aurobindo Pharma is currently the cheapest large-cap pharma stock, trading at a valuation of 7 times its current year price-to-earnings multiple. 29 of the 36 analysts tracking the stock have a buy recommendation, but that was factoring in the Sandoz deal.