EMS has just proposed a merger with Hypera – in an operation that would create the largest player in the pharmaceutical industry in Brazil with a market share of 17%, according to sources familiar with the matter who spoke to Brazil Journal.
A letter with the unsolicited proposal was delivered to Hypera’s board of directors this morning.
In the transaction – which would be structured through EMS being incorporated by Hypera – the Sanchez family, which owns 100% of EMS, would become the controlling entity of the new company.
Concurrently with the approval of the incorporation, EMS would make a voluntary OPA offering Hypera shareholders the option to sell 20% of their shares at a significant premium to the market price.
The OPA would be at R$30 per share, a 16.9% premium to yesterday’s closing price and 39% to the market price – after the stock fell nearly 16% today following a disappointing third quarter and changes in its commercial policy.
A source involved in the operation told Brazil Journal that discussions between the two companies about a potential merger have been ongoing for some time – with direct communication between Carlos Sanchez and João Alves de Queiroz Filho, known as Júnior, who owns 21.3% of Hypera.
Another major shareholder of Hypera is the Mexican holding company Maiorem, which has 14.7% of the capital.
The merger would create a sector giant with revenues of R$15.9 billion – split evenly between both companies – and an EBITDA of about R$5 billion, with 54% coming from EMS.
The operation would also help in deleveraging Hypera. While Hypera has a net debt of R$8.2 billion, with a leverage of around 4x EBITDA, EMS has a net cash position of R$500 million.
The combined new company would therefore have a leverage of less than 2x EBITDA.
“From an industrial point of view, it is a spectacular transaction,” said the source. “In relative terms, it creates the Ambev of the sector, an absolute leader, almost 2.5x larger than the next player, Eurofarma.”
According to this source, the transaction “has many commercial, research and development, cost structure, manufacturing structure, and distribution synergies.”
EMS already has an estimate of the potential synergies, but the number has not yet been disclosed.
The merger proposal comes on a day when the market is punishing Hypera’s stock heavily, after the company reported third-quarter numbers 30% below consensus estimates, and after announcing a significant change in its commercial policy.
To try to balance the stock of the chain – which is overstocked – the company said it will reduce its receivable period from 116 days to 60 days. The change is expected to result in revenue loss in the coming quarters since effectively Hypera will stop selling to distributors, in addition to impacting EBITDA and net profit.
The company also announced the discontinuation of its guidance and a buyback program for 7.5% of the capital.
EMS decided to launch the offer today precisely because of the buyback program, which would jeopardize the operation that was designed today.
BTG Pactual was EMS’s financial advisor, with legal counsel from Lefosse Advogados.
Hypera does not yet have financial advisors, as they have just received the proposal.
Source
Arwen Volkov, A graduate of the University of St. Gallen in Switzerland with a degree in International Finance, Arwen specializes in sustainable finance and green investments. She began her career at an investment bank in London, where she developed financing models for environmentally friendly projects. Known for her analytical and strategic thinking skills, Arwen is a sought-after financial consultant. In her spare time, she mentors fintech startups, contributing to their growth strategies. She is also a nature enthusiast and an amateur photographer.
