UPDATE 1-Aspen adds $1 bln deal with Merck to drug acquisition drive

Thu Jun 27, 2013 11:13am EDT

By Tosin Sulaiman and Tiisetso Motsoeneng

JOHANNESBURG, June 27 (Reuters) - South Africa's Aspen Pharmacare said on Thursday it would acquire drugs and a manufacturing business from U.S. drugmaker Merck in a $1 billion deal to bolster its presence in Europe, Latin America and Asia.

Africa's biggest maker of generic drugs has been on an aggressive acquisition trail this year that has broadened its offering of medicine in fast-growing regions such as Latin America and southeast Asia and lifted its share price.

Aspen last week said it was in talks to buy thrombosis drugs and a French factory from GlaxoSmithKline in a deal also likely to be worth $1 billion. It paid $215 million to Nestle SA in April for rights to infant formula in southern Africa and Australia.

Analysts do not expect the Merck deal to derail the purchase from Glaxo.

"The (Merck) deal is quite good for their expansion plan," said Sibonginkosi Nyanga, an analyst at brokerage Imara S.P. Reid. "They have been buying assets almost the world over. Their business is almost no longer a South African business. It's now a well diversified operation."

Shares of Aspen, which are up nearly 70 over the last 12 months and six-fold since 2008, rallied on news of the latest acquisition, adding almost 6 percent versus a 0.37 percent rise in Johannesburg's benchmark Top-40 index.

Aspen said in a statement it would buy a portfolio of 11 drugs - including hormone replacement therapy, oral contraceptives and an anti-coagulant - from Merck and a manufacturing business in the Netherlands that also has a U.S. site.

The drugs recorded revenue of $248 million in the financial year ended December 31, 2012, with more than half of that from Latin America and Asia Pacific.

It said it will largely fund the acquisition with new debt, which could be a seen as a negative.

Aspen already had 10.4 billion rand ($1.03 billion) in debt on its balance sheet at the end of December and its debt to equity ratio currently stands at a hefty 75 percent, according to Thomson Reuters data, well above the average of 27 percent for two of its local rivals.

Deputy CEO Gus Attridge told Reuters the borrowing was manageable.

"We are very cautious about being overextended from a debt perspective and clearly the completion of this transaction and the GSK transaction would increase the amount of debt... but we are comfortable that we will pay it down in time," he said.

Nyanga said Aspen's track record of cash generation and its ability to pay back its debt puts the company on a solid footing.

"With their ability to generate cash I think they're able to service that kind of debt."