Aspen look to Europe

This morning we had a very interesting announcement from Aspen which has put them under cautionary.


"Shareholders are advised that Aspen is currently engaged in discussions with MSD (known as Merck in the United States and Canada) in respect of a possible transaction comprising the acquisition of an active pharmaceutical ingredient facility situated primarily in the Netherlands and a related portfolio of pharmaceutical finished dose form products."


Now remember that Aspen already have a fantastic relationship with GlaxoSmithKline, a global healthcare company based in the UK. Glaxo own 18.6% of Aspen which they acquired in a deal which allowed Aspen to supply their products in SA. A second deal was struck which allowed Aspen to supply GSK products in Australia. This was bought for cash though.


Although the details of the Merck deal are not given one would expect that something similar is being struck. Merck have some great products but like Glaxo their focus may not be on Africa, South America or Australia. You see Aspen take the responsibility for marketing and selling these goods in return for either shares or cash. You'd probably find that since they became larger they would prefer to pay using cash and debt as opposed to equity. Although when you lock in a client with equity your interests do become aligned so we could see a bit of both.

Another interesting observation is that the acquisition is taking place in Europe. This could be Aspens entrance into a new continent. Why Europe you may ask? Well they entered Australia to gain access to Asia so this may be another gateway to gain access to the products and bring them to the developing regions where Aspen operate. At the same time Europe has an aging population, cheap debt and big growing populations to the east.


This time around they are looking to buy a production facility. When these deals were first struck they would not have been able to afford a facility. But again this may have been forced upon them by Merck. It is also interesting to see Merck divesting from Europe. Do they see Europe as a place to get out of? I wouldn't take that as a negative for Aspen, they strive on underappreciated, noncore assets. There are still lots of unanswered questions which I am sure we will get the answers to soon. As always we back what is often considered the best management team in the country to make the right acquisitions. If history is anything to go by, this will be an exciting development.