The takeover plays involving Healthscope and Sigma Pharmaceuticals are now looking a bit doubtful.
That’s after Sigma issued a profit warning and market reports that one of the private equity groups stalking Healthscope was thinking of abandoning its pursuit.
Sigma downgraded 2011 annual net profit guidance yesterday saying corporate costs have increased and its generics division was performing below expectation.
The cut came a couple of days after it issued a statement hinting that its suitor, Aspen Pharmacare of South Africa might like to see its way to lifting its suggested 55c a share offer price.
That price was cut from the initial 60c a share offer after Aspen had had a first look at Sigma’s books.
Aspen obviously didn’t like what they saw and Sigma has now confirmed that, so expectations of a higher price are history after the downgrade.
Sigma said it expects reported net profit to January 2011 to be in the range of $43 million to $47 million, down from earlier guidance of around $80 million.
Sigma’s result in fiscal 2010 was a net loss of $389 million, following net profit of $80.1 million in fiscal 2009. The loss was after write-downs and impairments of well over $400 million.
Sigma said at the time of its 2010 results release that it expected the 2011 result to return to 2009 levels.
In a market update yesterday Sigma said its performance in most areas had been sound, but its generics division was performing below expectations and the industry remained volatile.
Sigma said that one-off costs relating to "corporate activities", including the takeover bid from South African-based suitor Aspen Pharmacare, also would affect the annual result.
"Sigma’s performance in the first five months of the financial year has been sound in most areas of the business," the company said in its statement.
"The Consumer, Manufacturing, Medical and Retail businesses have all performed broadly in line with expectations. The Wholesaling business has enjoyed sales growth of 9.3 per cent year on year.
"Operating costs remain in line with expectations, although corporate costs have significantly increased in the context of the Company’s current corporate activities.
"These are one-off costs and are not expected to recur.
"Performance in the Generics division remains below budget. Competition in this area remains intense," Sigma said.
"Considerable uncertainty remains, however, concerning the short term impact of foreshadowed regulatory changes."
Sigma said its board would "continue to monitor performance closely and will endeavour to provide further guidance with Sigma’s half year results".
The guidance includes reported earnings before interest, tax, depreciation and amortisation (EBITDA) of $180-190 million, and earnings before interest and tax (EBIT) of $130-140 million.
Underlying results would be EBITDA of $190-200 million and EBIT of $140-150 million.
Sigma said its underlying net profit in fiscal 2011 was expected to be in the range of $53-57 million.
Sigma shares closed on Wednesday at 48.5 cents.
When market opened yesterday, the shares fell another 2% or 1c to 47.5 cents. It then fell another 1% to close at 45.5c.
No one is convinced.
Floating stories about a possible bid and floating stories about a possible pull out are standard practice where private equity groups are concerned.
It happened when a bunch of them were hunting Coles Group several years ago; it happened while Myer was owned by TPG and now its happening with Healthscope with market reports that the US group, Carlyle, could pull out of its consortium bid for hospitals group.
The stories said there were "financing issues’ for in the bid for Healthscope, which is the second-largest hospital owner in the country.
Media reports said Carlyle also had concerns about the debt market and government moves to deregulate the pathology industry were also weighing on sale efforts, sources said.
Carlyle is part of a consortium including TPG and Blackstone Group LP looking at Healthscope.
We will know later today just what is happening because that’s when a bid for Healthscope from the consortium is expected.
US private equity group, Kohlberg Kravis Roberts & Co is another possible bidder. It could bid alone, but there were reports that it had had talks with CVC Asia-Pacific about a joint bid.
CVC took over the radiology group, DCA back in 2007 in a $2.7 billion deal.
Healthscope’s bid could be valued at around $1.8 billion, if one eventuates.
Healthscope shares fell 1.1% or 6c to $5.40, trading nearly 7% below KKR’s offer of $5.80 a share.
The market doesn’t think the $5.80 price is sustainable.
