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Patheon rebuffs private equity suitor

Canadian contract research and manufacturing firm Patheon (Toronto, Ontario) says that a proposed private equity bid “substantially undervalues the company, its earnings potential and future growth prospects”.  An independent valuation commissioned by Patheon values its stock at US$4.20-5.00 per share compared with the proposed offer of US$2.00/share. 


JLL Patheon Holdings, an affiliate of New York-based private equity form JLL Partners, said in December that it planned to make the unsolicited cash offer (see Biopharm Development News 5/2/08).  JLL already holds around 30% of Patheon’s stock, so any offer would be considered an insider bid.  Following the announcement, Patheon set up a special committee of independent directors, which engaged financial advisors BMO Capital Markets to come up with the formal valuation.  


The special committee believes that “the JLL proposal would provide far less value to shareholders than could be achieved if Patheon were to continue as an independent company”.  Describing the proposal as “opportunistic”, the committee said that JLL “was attempting to take advantage of a rapidly declining stock market and its impact on Patheon’s share price”.  The announcement was made just before the company announced positive results for fiscal 2008, the committee noted.


Patheon reported a 6.4% rise in revenues to $172.1 million and a 4.6% increase in profit to $24.8 million for the fourth quarter of 2008.  For the full year, revenue was up by 13.1% at $717.3 million but profit down by 1.8% at $82.6 million.


The company’s pharmaceutical development services division performed better, with fourth-quarter revenues up by 13.3% at $36.8 million, supported by strong growth at its Canadian, Italian and US facilities.  Fourth-quarter profit grew by 36.6% to $12.7 million due to the increased revenues, new business in Japan and “better overhead absorption”.  Annual revenues grew by 20.4% to $139.5 million and profit by 38.5% to $42.1 million.


“The financial results for the fourth quarter indicate that the [company] restructuring … is being successfully completed.  The … committee fully supports the five-year strategic plan and the 2009 fiscal year budget that were developed by the management team led by Wes Wheeler and recently approved by the board,” said special committee chairman Paul Currie.


The committee also includes Claudio Bussandri, Peter A W Green and Derek J Watchorn.  It has engaged Goldman, Sachs & Co as financial advisor, to assist in the evaluation of any offer made by JLL, and Davies Ward Phillips & Vineberg as legal counsel.


BMO’s valuation has been sent to JLL, which may now withdraw or revise its proposal and/or proceed with a formal offer.  JLL was not available for comment as Biopharm Development News went to press.

13:10, 5th March, 2009

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