Aspen confirmed its R6.1 Billion acquisition of Australian pharma Sigma

On Friday Aspen, our recommended generic drug producer confirmed its R6.1 Billion acquisition of Australian pharma Sigma. "Aspen is pleased to announce that, following approval of the transaction received at the extraordinary General Meeting of Sigma's Shareholders, held on 14 January 2011, all the conditions precedent to the Transaction have now been met and the Transaction is now unconditional. The Transaction is scheduled to complete on 31 January 2011."

Just as a reminder, Sigma are Australia's largest manufacturer of generic drugs but found themselves in financial distress following goodwill write downs after regulation changes cut generic margins. The original offer was for the whole company but as negotiations panned out it was decided that Aspen would only buy the Pharmaceutical business and not the wholesale part.

We are happy with this outcome because Sigma are using the proceeds of the sale to fund their debts, therefore these debts will not hop onto Aspens financials. It also means they are sticking to the side of the business they are familiar with, the production of the generics and not the wholesale.

As we have always said, we back the Aspen management team to make the correct decisions as they have so often in the past. Although Australia has some tough regulations when it comes to drug production, Sigma have some decent exposure to the Asian market where Aspen are looking to target. CEO Stephen Saad singled out the Philippines, Taiwan, Thailand and Indonesia as potential markets not to mention Aspen will now be the biggest drugs company in Australia.

Before the deal, 53% of revenues came from the South African division but this will surely change following the deal, making Aspen even more of an international play mostly in emerging markets. A trend we are a very happy to invest in.