Bain, Cinven Clear First Stada Obstacle as Holdouts Await

(Bloomberg) -- Bain Capital and Cinven barely succeeded at winning over enough shareholders to move forward with their takeover of Germany’s Stada Arzneimittel AG. Now they have to convince the holdouts.

The private equity partners’ 5.4 billion euro ($6.3 billion) offer won over owners of about 63.9 percent of the shares, Stada said in a statement Friday, edging past the 63 percent threshold in a takeover quest that has spanned months and at times looked doomed to fail.

Meeting the target isn’t the end of the road. The buyers will need stock representing 75 percent of voting shares to strike a so-called domination agreement, necessary to exert wide-ranging control over the drugmaker and tap its cash flows. Bain and Cinven will likely have to sweeten their offer, above their 66.25 euro-a-share bid, to convince holdouts to sell.

Hedge funds such as Elliott Management Corp., which disclosed last month that it holds 8.69 percent of Stada’s shares, often challenge bidders for a hefty premium above the initial bid. Bain and Cinven had lowered the threshold after their first bid missed getting enough investor support in June, meaning there’s more stock outstanding that will need to be swept up in a potentially higher offer.

Elliott, which had signaled its willingness to support the private equity duo before the Aug. 16 deadline for shareholder commitments ended, may still push for a higher price, people familiar with the matter said, asking not to be identified because the plans are private.

Representatives for Stada, Bain, Cinven and Elliott declined to comment.

All antitrust approvals have been secured, and the tendered shares will be transferred before the end of the month, the Bad Vilbel-based drugmaker said in the statement. There is a further acceptance period until Sept. 1 for shareholders who haven’t tendered yet. Bloomberg reported that the offer had succeeded earlier, sending the stock to a record.

Shares of Stada jumped about 8 percent to 72.55 euros in Frankfurt, their highest-ever level. The stock has almost doubled since April 2016 amid speculation that the company may be acquired.

European Muscle

Elliott, controlled by billionaire Paul Singer, has a history of taking advantage of German rules that allow investors to push for larger payouts during deals and potentially sue for more compensation.

The hedge fund bought shares in Kabel Deutschland Holding AG ahead of Vodafone Group Plc’s takeover attempt in 2013, refusing to tender the stock as it argued that the phone company’s offer was too low. McKesson Corp. was forced to increase its offer for German drug distributor Celesio AG in 2014 after Elliott, which controlled 25 percent of the target’s shares, demanded a higher price.

More recently, Singer has been making his investment vehicle’s $33 billion presence felt in Europe, and not just with Stada.

On Wednesday, Elliott said it boosted its holding in the London-traded shares of BHP Billiton Ltd. to 5 percent from 4.1 percent in April, adding pressure on the world’s biggest mining company to enhance returns. Hours later, the hedge fund and Akzo Nobel NV agreed to end their legal confrontation after the Dutch chemicals and paint giant after months of bickering over strategic direction.

Difficult Path

Bain and Cinven’s takeover effort had become a complicated affair well before Elliott got involved.

Stada, unlike rivals, had eluded a takeover for years thanks to an unusual shareholder structure and entrenched management. That changed when Active Ownership Capital Sarl led a shareholder revolt in May 2016, and ultimately succeeded in overthrowing a rule that they said gave Stada’s board undue influence over ownership of the company. Last August, former Chief Executive Officer Hartmut Retzlaff also resigned after more than two decades at the helm, paving the way for change.

The moves precipitated a fierce bidding war earlier this year, with a competing offer from a consortium comprised of Advent International Corp. and Permira, according to people with knowledge of the matter. China’s Shanghai Pharmaceuticals Holding Co. and private equity peer CVC Capital Partners also considered bids, people said at that time.

Bain and Cinven triumphed, only to have investors reject their original offer by a slim margin in June even after the threshold for shareholder participation was cut and the deadline was extended. The suitors quickly submitted a second bid, offering more money and lowering the support target yet again, in July.

The new bid, up from the previous offer of 66 euros a share, represented a premium of nearly 50 percent from Stada’s share price in December. That takeover attempt ultimately prevailed after the drugmaker’s management, the two private equity firms and their advisers made repeated appeals to investors, and particularly to hedge funds, in recent days to accept the offer.

“They have a new owner, and we’ll see how quickly they take action,” said Ulrich Huwald, a Hamburg-based analyst with Warburg Research GmbH. “The question will be a strategic one: whether this is an acquisition platform where they will go onward” to do more deals.