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CVC puts $9 billion Recordati bid on hold as political uncertainty weighs -sources

Reuters  |  LONDON/MILAN 

By and Stephen Jewkes

LONDON/(Reuters) - Buyout fund held talks with Italian drugmaker over a possible 8 billion euro ($9.4 billion) takeover, but has put the deal on hold due to concerns about the hefty price tag and political uncertainty, three sources familiar with the matter said.

Recordati, a of cardiovascular and rare diseases drugs, is Italy's biggest listed company with a market value of 6.4 billion euros ($7.6 billion).

The family, which controls about 51 percent of the company via their Fimei holding, has been sounding out potential bidders in the last two years following the death of the company's former boss in 2016, the sources said.

shares rose as much as 6.5 percent on the to their highest level in more than three months. By 1043 GMT, the stock was up 5.8 percent, leading gainers on Italy's blue chip index.

The family does not want to sell on the cheap. An 8 billion euro bid would imply a premium of 25 percent for the whole business, the sources said.

London-based CVC began talks with Recordati last year but one of the sources said it decided to put the deal on hold shortly before Italy's national elections on March 4, which resulted in a strong showing for anti-establishment parties and a hung parliament.

"There was momentum in negotiations in late 2017 but they waited too long. Right now there is no appetite to make big bets in Italy," the source said.

CVC would need to borrow cash to a takeover of Recordati and raise additional funds by distributing shares in the group to its own investors - a task made more challenging by Italy's protracted political stalemate.

"Recordati would be a great investment for CVC but it's hard for them to justify such a high price with the ongoing political uncertainty," the source said.

Financial markets and investors had been relatively resilient during 10 weeks of inconclusive talks between Italian political parties seeking to form a government.

That changed this week as the anti-establishment and the far-right League neared a deal to form a coalition government and challenge European fiscal rules.

On Wednesday, Italy's borrowing costs jumped and its stocks slid after a draft programme for the potential government revealed plans to demand 250 billion euros of debt forgiveness.

A second source with knowledge of the negotiations said the clouded political outlook had played a role in CVC's decision to sit on the fence for now, adding no other bidders were currently in talks with the Recordati family.

CVC could re-examine the deal once the political situation stabilises, the first source said.

CVC declined to comment, while Recordati was not immediately available for comment.

Recordati, led by and Alberto Recordati, was founded in 1926 and has revenues of 1.2 billion euros and net income of 288 million euros. Almost 80 percent of its overall revenues are made outside

The Milan-based company employs more than 4,000 people and operates in Western as well as and various Central and Eastern European countries, the United States, Canada, and


CVC, which raised a record 16 billion euros for its latest fund for investments in and North America, has spent several months trying to "make the numbers work", one of the sources said.

It had initially looked at the possibility of merging Recordati with generic drug firm Alvogen, another business in its portfolio, in a bid to create scale and extract synergies, this source said.

Under the planned deal, CVC would have bought the Recordati family's stake in the company and then launched a mandatory public offer for the remaining shares, as required by Italian takeover rules. If successful, CVC would have de-listed the company from the stock market.

Recordati shares have strongly outperformed the European sector in the last four years, almost trebling their value, boosted by delivery on strong organic growth and M&A.

companies are typically trading at higher multiples as the sector is perceived as resilient and recession-proof. The industry has attracted a large slice of global M&A activity this year, with Japan's Takeda recently clinching a 45.3 billion pound deal for London-listed Shire.

funds have also tried to gain more exposure to the sector with London-based buyout fund Advent recently entering exclusive talks to buy Sanofi's European generics arm for 1.9 billion euros.

Last year a consortium of and Advent won a 5.4 billion euro takeover quest for German generic drugmaker that spanned for several months.

($1 = 0.8477 euros)

(Reporting By Pamela Barbaglia, additional reporting by Danilo Masoni; Editing by Susan Fenton)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, May 17 2018. 17:08 IST