The Jordanian city of Petra remained unknown to the western world until 1812. Hikma Pharmaceuticals, founded by a Jordanian family, is similarly unappreciated by investors, despite floating in the UK over a decade ago.
Renegotiating an acquisition was probably not the way it would have chosen to raise its profile. In July last year, it agreed to pay $2.65bn in cash and shares for Roxane, a generics business owned by Germany’s Boehringer Ingelheim. On Wednesday Hikma said Roxane’s sales in 2015 were lower than the $680m it had estimated — largely because of increased rebates to wholesalers — and that sales in 2016 and 2017 would also be affected. As a result, Boehringer has agreed to a reduction in the deal’s cash consideration, from $1.18bn to $647m.
Goldman Sachs estimates the sales revisions will knock at most $100m off Roxane’s revenue across 2016 and 2017; that is a reduction of less than 10 per cent against previous expectations. In return, Hikma is getting a 20 per cent cut in its acquisition price. Its shares fell 18 per cent, then recovered completely.
The impact on profits will be amplified. Bank of America thinks 2015 earnings before interest, tax, depreciation and amortisation at Roxane might be half its previous estimates, though the effect will be less marked in 2016 and 2017.
Hikma points out that it is buying Roxane primarily for its pipeline, not its existing products. That, plus its record — net profit growth of 22 per cent a year for nine years has propelled it into the FTSE 100 — suggest it deserves the benefit of the doubt. The fast recovery in the shares suggests it will get it. But the fact that Roxane’s salesmen omitted to inform their own finance department about rebates in time for publication of Hikma’s prospectus (the deal requires approval from shareholders) does not inspire confidence in the company’s processes. In nervous times, it is understandable that the market reacted as it did.
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