EP Vantage Exclusive - Actavis scrambling for options as Deutsche posts 'substantial' loan loss

Beleaguered Icelandic generics drug maker Actavis remains under intense pressure to repay a €4bn ($4.9bn) loan to Deutsche Bank, half of which the German institution has been forced to mark down after several attempts to recover it failed, according to healthcare bankers following the situation.

"They have written down €2bn-€3bn of it so the losses are substantial," claimed a senior banker who is closely monitoring the ordeal. "And these are only going to get bigger if they fail to find a quick solution." The most likely solution is a merger with German rival Stada Arzneimittel, which would consolidate Actavis' position as the world's fourth-largest generics firm with almost $4bn in combined sales (see table below), but all other options are still being explored, the banker added, echoing other sources following Actavis' plight.

In 2007, Icelandic buyout firm Novator borrowed €4bn from Deutsche to fund its €4.7bn leveraged buyout of Actavis. According to sources, the loan was due for repayment in July 2008 but after highly-indebted Novator could not pay it, the bank granted a one-year extension on condition that Actavis be sold to repay the loan. That attempt failed in February 2009 amid claims that Novator's $7-$8bn "greedy" price failed to draw bidders. At the time, Novartis, Teva, Sanofi-Aventis and Watson Pharmaceuticals were reported as potential suitors.

In summer 2009, sources said Deutsche was considering taking over Actavis via a debt-for-equity swap to recover the loan, which it had not been able to sell in the deteriorating secondary markets. Actavis nor Deutsche would then comment on the loan's status but sources said Actavis was making minimum interest payments.

"Just a mess"

Then in March, an increasingly desperate Deutsche agreed to back Actavis' bid for Germany's Ratiopharm in a deal that would allow it to swap the debt for a stake in the new entity. However, that process also failed after Teva won a hard-fought auction to buy the firm for $5bn (Teva triumphs in 'must-win' battle for Ratiopharm, March 18, 2010).

Soon after losing Ratiopharm, Actavis' board met with Deutsche to hatch a new plan that envisaged, among other things, launching a takeover or merger with Stada. Bankers maintain this is Deutsche's preferred strategy as it does not want to put more money to support a billion euro takeover bid.

"DBs board has told me there is no way they will put another two billion into a situation that has already lost them two to three billion," said another senior banker familiar with the situation. "The whole thing is just a mess but a merger or partnership with another company makes the most sense."

An Actavis-Stada link-up would bring "significant" cost-cutting and geographical synergies, said another banker, adding that the merger process could start soon after the summer. "Deutsche bank is really adding pressure so they have to do something very soon."

That "very soon" could also mean late autumn or even next year, another banker pointed out.

"Cloak and dagger"

"
Everything is being done cloak and dagger style so one can only guess what they are going to do ultimately," the senior banker said. Actavis could still generate good value from a break-up auction that could attract interest from the likes of Watson or Mylan, he added.

"There are lots of bits and pieces worth a lot," he noted, adding that the Eastern and Southern European divisions could sell very well if marketed separately. "These are very profitable units with high growth prospects."

Moreover, a direct sale, priced in the "more reasonable" $4bn-$5bn range, could attract interest from Pfizer or Sanofi-Aventis which are keen to growing their generics franchise, according to the banker.

Expansion plans

Finally, Deutsche Bank may wait to relaunch Actavis' sale next year when market conditions are expected to improve.

"I don't think they are that desperate to recover this immediately," the banker noted. "If they were, they would have pursued a sale at a cheaper price tag. The fact that we are not hearing that shows they might be prepared to sit on the debt for a little longer."

However, signs emerged last week that change is already afoot at the Icelandic company, with the announcement of the appointment of Claudio Albrecht as chief executive, replacing Sigurdur Oli Olafsson who stepped down after seven years with Actavis. Mr Albrecht was chief executive of Ratiopharm for eight years during which time he was credited for helping double the company's sales. 

In interviews already given by Mr Albrecht, he has made no secret of the fact that his remit includes aggressively pushing expansion plans. This suggests that whatever strategy is chosen to pay back the debt, it is likely to become apparent soon.

Deutsche Bank, Actavis, Stada and Novator all declined to comment for this story.

WW Unbranded Generic Sales WW sales ($bn) Market Rank
2009 2016 2009 2016
Teva Pharmaceutical Industries 9.67 18.61 1 1
Novartis 6.68 10.51 2 2
Mylan 5.02 8.71 3 3
Stada-Actavis 3.99 5.95 - -
Actavis 2.43 4.08 4 4
Hospira 2.07 2.85 6 5
Apotex 1.37 2.84 11 6
Sanofi-Aventis 1.41 2.68 9 7
ratiopharm (to be acquired by Teva) 2.32 2.63 5 8
Aspen Pharmacare 0.98 2.40 16 9
Dr. Reddy's Laboratories 1.03 2.37 15 10

Source: EvaluatePharma

by guest contributor, Ivan Castano

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