Canada is losing another of its mid-cap public health-care companies, with the move to privatize Toronto-based contract drug maker Patheon Inc.
The company's majority shareholder, New York hedge fund JLL Partners, is partnering with giant Dutch health care company Royal DSM to buy out Patheon's minority shareholders for $9.32 (U.S.) per share, or about $9.72 (Canadian). Patheon will then be combined with Royal DSM's own contract drug making unit to create a company with about $2-billion in annual sales.
The announcement of the offer – which has been approved by a special committee of Patheon's board – drove the company's shares up more than 60 per cent on the Toronto Stock Exchange Tuesday. The stock had been trading at around $6 before the offer was made.
This is the latest in a series of go-private transactions that have diminished the ranks of mid to large cap Canadian health care stocks.
Two weeks ago specialty drug distributor Paladin Labs Inc. agreed to sell itself to Pennsylvania-based Endo Health Solutions Inc. in a deal valued at about $2-billion. And in October medical lab testing company CML HealthCare Inc. was absorbed by rival LifeLabs Medical Laboratory Services in a $1.2-billion deal.
Alan Ridgeway, an analyst at Paradigm Capital Inc. in Toronto, said the Canadian market now "has only a handful of true mid cap biotech companies," although he noted that some smaller companies are growing and moving into that space.
Under the complex Patheon takeover deal, JLL and Royal DSM will set up a new holding company that has yet to be named. JLL will hold 51 per cent and Royal DSM – a European manufacturing giant that makes everything from biomedical devices to food supplements to thermoplastics – will hold 49 per cent.
Patheon's business, which develops and manufactures drugs for other pharmaceutical companies, will be folded in with Royal DSM's similar business, called DSM Pharmaceutical Products. The new company will have 8,300 employees, and 23 offices in North America, Europe Latin America and Australia.
The two companies are "highly complementary, Royal DSM's chief financial officer Rolf-Dieter Schwalb told analysts on a conference call. "After a successful completion of the transaction [the new company] will have an unmatched end-to-end offering from drug products to active substances," he said.
Patheon's chief executive officer Jim Mullen will become CEO of the new entity. He said on a conference call that the company's customers "have indicated a strong desire to streamline their outsourcing network" so it made sense to combine Patheon with another firm. Customers "want to work with fewer companies with broader capabilities and capacity," he said.
Because DSM is in a similar business, it "is a very logical strategic partner," Mr. Mullen said.
This is not the first time JLL has tried to take Patheon private. In 2009 it tried to buy the company for $2 per share, but Patheon's management and board resisted and there was a prolonged proxy fight. Still, JLL built up its a majority stake during that process.
The current deal for Patheon is set to close in the first half of 2014, but it still needs a variety if regulatory, legal and shareholder approvals.