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Australian Financial Review : October 17th 2006
FBA 013 The Australian Financial Review www.afr.com Tuesday 17 October 2006 13 Companies Ten Time to reveal pain 14 Telstra Rich show big interest 14 Edited by: firstname.lastname@example.org Breaking news at www.afraccess.com Evans sizes up buy-out at PMP Neil Shoebridge KEY POINTS PMP chief executive is restructuring the printing and distribution group. Sources say he wants to take PMP out of the public company spotlight. PMP chief executive Brian Evans is working on a management buy-out of the printing and distribution group, backed by private equity firms Pacific Equity Partners and CVC Asia Pacific. Mr Evans, who joined PMP late last year after quitting John Fairfax Holdings (the publisher of The Australian Financial Review) when he missed out on the chief execu- tive's job, would not comment yesterday. But sources close to the company said Mr Evans was keen to take PMP out of the public company spotlight while he restructured the business, which generates more than 80 per cent of its earnings from the crowded, highly price-competitive printing sector. The PMP board has appointed Gresham Advisory Partners and the law firm Blake Dawson Waldron to ensure it receives independent advice. Last week, PMP said it had been approached by an unspecified number of private equity firms. The revelation followed a query from the Australian Stock Exchange about the 18 per cent jump in PMP's share price between October 6 and 11. Over the past week, PMP shares have climbed 19 per cent to $1.855. Yesterday, PMP said it had received the approaches in March and April this year. It also said it had hired Gresham and BDW to ''put in place a process designed to both protect shareholders' interests and to maximise shareholder value''. The company said its talks with the private equity firms were at an early stage and the approaches were ''preliminary, incomplete, con- ditional and confidential''. Mr Evans, who was paid $1.9 mil- lion for his first eight months at PMP, has led a $20 million cost- cutting program at the company. About 120 people, or 4 per cent of the company's workforce, were retrenched late last year and various divisions have been merged. He also supervised the com- pletion of PMP's $124 million investment in four new presses. Work on the press upgrade was started by Mr Evans's predecessor, David Kirk, who left in October last year to join Fairfax as chief execu- tive. PMP's net profit rose 6.1 per cent to $33.2 million during 2005-06. The company has not given a guidance for the current year but chairman Graham Reaney has indicated it will pay a dividend for the first time since 2000 next year. Citigroup analyst Brian Han recently lifted his price target for PMP from $1.60 to $2.10 ''due to increasing confidence in our esti- mates and higher valuation mul- tiples''. He said PMP was entering ''a meaningful free cash flow phase after the recent capex hump''. Mr Han said it had recovered the business lost while the new presses were being installed and had increased its proportion of longer- term contracted work to about 80 per cent of volume. This week, PMP's catalogue dis- tribution division will start testing a satellite tracking system to improve its accuracy and speed. ''PMP went through a very tough time during its re-equipment phase,'' Eric Metanomski from MMC Asset Management, which owns 7 per cent of PMP, said. ''It has come through that. Our understanding is that the business it lost has returned, cus- tomer satisfaction levels have improved and its order book through to Christmas is good. '' Biotech bid tussle gives insight into future Many of the bigger medical device and pharmaceutical companies have large marketing teams. '' They have to find ways to support and grow their business.'' The interest shown in Vision Systems has given other life science groups ideas, writes Henry Byrne. T he bidding war surrounding local biotechnology group Vision Systems all but ended last week, but the reverberations continue to be felt throughout the life science sector as investors weigh up the kind of global interest other companies might face in the future. US conglomerate Danaher Corp's bid worth $800 million floored its competing American suitors, Ventana Medical Systems and Cytyc Corp. The offer of $3.75 a share, which was 50¢ above the next highest bid from Cytyc Corp, caught the attention of investors as it values Vision's equity alone, before its convertible notes are taken into account, at $693 million. This is more than double the sharemarket value being ascribed to the company before the takeover interest emerged in August. While Danaher is yet to officially clinch the deal, Ventana Medical Systems has packed its bags and gone home and Cytyc says it will not be raising its $3.25 a share offer. MPM Capital general partner Jim Scopa, who is based in San Francisco with the world's largest specialist biotech investment house, says the Vision Systems bid shows the true value of the company's products were not readily understood in the local market. ''This has been auctioned globally in a way that we don't always see, and I think you will see more such products and technology revalued subject to the competitive fray of the market globally,'' he says. Scopa says being at the centre of activity in the US allows very good technology that will ultimately find its way into the hands of international players. of some technologies. ''If you are a global fund and you continually see business plans in a particular therapeutic area, in addition to closely monitoring who is on file with the FDA and talking to physicians about what trials they're involved in, it makes it possible to assess the risk-rewards of an opportunity in a way that can be more challenging for retail investors sitting in the local markets,'' Scopa says. Local experts say the premium offered for Vision highlights the discount Australian life science companies attract locally and more importantly, the kind of premium global companies are willing to pay for the right assets. ''Many of the larger medical device and pharmaceutical companies have large marketing teams and dwindling product pipelines,'' says Brad Ross- Sampson, a director at specialist biotech investor EG Capital. ''As we see more therapeutic companies come through showing sufficient data and a high probability of getting to market, they're going to be acquired or potentially take a licensing deal.'' ''The fundamental issue here is that the core IP in Australia is world class and has a chance of being exploited internationally.'' Ross-Sampson says Ventracor, Heartware and Sunshine Heart are three local companies that may attract international attention. They are targeting the US market for coronary heart disease, although they are at very different stages of the regulatory approval. ABN Amro analyst Scott Power says there are a number of examples of very good technology that will ultimately find its way into the hands of international players. But he is quick to point out that this is a natural stage for the sector as companies in this space mature. Among the companies he sees as potential future targets are drug developers including Pharmaxis, Peplin, Acrux, Avexa and Alchemia. In August, Danish group Novozymes made a $96 million bid for Adelaide-based drug-developer Gropep. This followed a $20 million bid by US pharmaceutical Hospira for BresaGen in a friendly takeover. While this kind of activity appears to have gathered pace in the local market in recent times, some market watchers point out it is a natural in the biotechnology and pharmaceutical space. ''It's the nature of the industry that transactions will happen all the time because customers change their preferences, new products are in development and companies lose their competitive advantage, so they have to be continually looking for ways not only to support their existing business but to grow their business as well,'' Bioshares analyst David Blake says. But the Vision transaction may still offer an important example of how emerging companies can unlock value and make the quality of their offerings more obvious to investors. Vision's sold its Vision Fire & Security business for $248 million earlier this year in a decisive move that helped focus investors on the true quality of its diagnostic cancer and infectious diseases products. Blake says this is an important lesson for other companies in the sector. ''The more you find focus, the more you can work to a story,'' he says. API rebuffs Sigma bid as opportunistic Fiona Tyndall '' We continue to weigh up the value of API to us.'' Drugs maker and chemist supplies company Australian Pharmaceut- ical Industries yesterday rejected a takeover proposal from rival Sigma Pharmaceuticals as too low, prompting speculation a higher bid- der will emerge. Two weeks ago Sigma revealed it had approached API with a $2.20-a-share takeover offer, valu- ing API at $565 million. The offer was incomplete and Sigma had asked to be allowed to conduct due diligence on the company. But API, whose shares slumped following the blundered integration of an IT and accounting system during which API lost track of $17.2 million, yesterday rebuffed the bid as oppor- tunistic and highly conditional. ''The API board believes the proposal was opportunistic in nature and in the form of the approach,'' chairman Peter Robin- son said in a release to the Aus- tralian Stock Exchange. ''This included its clear lack of certainty around timing, a require- ment for API not to seek an independent valuation and the potentially open-ended due- diligence requirement.'' Shares in API closed up 0.37 per cent, or 1¢, to $2.72. Sigma's stock was unchanged at $2.71. Broker UBS said a more competi- tive bid from either Sigma, another player in the sector or a venture- capital firm was now likely. The broker said there was ''strong potential'' that competitor Symbion Health would make a tilt at the company. Symbion Health chief executive Robert Cooke said he was interested in industry consolidation and he had looked over API's accounts. ''We continue to weigh up the value of API to us or some co- operation with API or with Sigma or some back-of-house co-operation with all groups,'' he said. ''It is not just [API's] numbers, it is the strategy as a stand-alone and as a combined entity and what that would do to our market share and customer base and making sure the synergy upside is consistent with our aims or continuing to improve the performance in this business. ''[API] is a certain value to every player in the industry. We will just see how this plays out.'' API's Mr Robinson said the company was still open to industry consolidation, but would ''only do so when we can be confident that our own shareholders and cus- tomers appropriately share in the benefits of any proposal''. Washington H Soul Pattinson, API's major shareholder with 21 per cent of the stock, last week called the Sigma proposal ''on the skinny side'', prompting speculation the offer would not proceed. Sigma managing director Elmo de Alwis said he wanted to talk to API about the assumptions on which he had based the bid and he was hesitant to make a higher, hostile offer for the drugs maker without a clear reason.