The Stada Saga

Fri, 2017/09/01 - 1:57pm | Your editor
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After a series of perilous mailings and conversations I have persuaded brokers Charles Schwab to keep an eye on developments at Stada Artzneimittel, STADF, which we tendered to private equity group Bain Capital of the US and Cinven, a UK hedge fund.

They only collected 63.5% of the shares and under Germany;s Beherrschungsvertrag law, in order to take control of the company board they need 75% of the shares out; and to delist it even more. The takeover bid at euros 5.3 bn barely scraped through last month after a June bid fell short. After that the former board were all replaced.

It is always fun when an obscure hard-to-follow stock I found for my readers is subject to a bid. This year it has happened several times, twice in Canada, once in Britain, and once in Hessen, the German province from which my parents escaped to the USA from the Nazis.

Taking advantage of this close win, US hedge fund Elliott Partners, run by Paul Singer, is attempting to force the two victors to pay a premium to collect another 11.5% of the STADF shares it holds for ransom. Its deadline is today. If Singer, a well-known Manhattan supporter of right-wing Koch Republicans and hard-line Israeli politicians (which he offsets by also supporting gay and lesbian rights) gets a premium price for his Stada shares during the next calendar year to August 22, we also will be get the additional amount for the shares we already cashed out. Singer is also opposed to passive index-tracking investment for “devouring capitalism” which is something I agree with.

Stada, a large maker of copy-cat drugs for Germany and the world, first came to my attention some years ago because I thought it might become a target for Teva, the Israeli firm. Listed in Frankfurt, its shareholders were mostly medical and pharmaceutical professionals who doled out its products in Germany.

The German public tends to be distrustful of stock markets in part because they are run by large banks as the brokerages which used to operate in Frankfurt before Hitler's rise were often Jewish-owned (two by uncles of my father) and no real replacements exist except a bit in Bavaria. So apart from those with a professional knowledge of a sector, like drugs, individual investors are rare in most of Germany, and very mistrustful of funds and foreigners.

Still, the Stada saga is extraordinary. The current board are all resigning; the prior board was denied “quittance” (legal immunity) by the ones resigning, Stada is about to name a new CEO, generics pharma industry veteran Claudio Albrecht, according to Bloomberg, who will be the 4th CEO of Stada in 2017. The first to go was Hartmut Retzlaff, who had long headed the company whose HQ was near Frankfurt, officially for health reasons. He also was known to be opposed to a sale of Stada.

His successor Mattias Wiedenfels then fired advisors and cut the powers of Retzlaff's son ostensibly to save money in Stada purchases raw pharma materials and made drugs.

But another reason for the CEO switch was because an investor, Active Ownership Capital, sought to sell Stada to Bain and Cinven. New CEO Wiedenfels, who is about 40, discovered that his phone was being tapped, there was a hidden microphone in his car, and he was sent photographs of himself in public or private situations to threaten him against the talks with the US and UK funds. This was reported by Manager Magazin in March, according to FiercePharma.com, a daily blog on the industry.

At this time other potential buyers of Stada came forward: the usual Chinese buyers looking for foreign boltholes to buy; Mylan Pharma, which was trying to protect its own operations from hostile takeover bids, and a Boston private equity fund, Advent International, specialist in healthcare investing. Advent offered $3.7 bn for the company and was told to do better. CEO Wiedenfels crafted a plan to cut costs and increase sales and earnings with a cashflow target by 2019 of euros 570-590 mn and a sales target fo euros 2.65-2.7 bn.

A first offer came from Cinven and Bain at euros 5.32 bn, then about $5.63 bn, much higher than Advent's offer and a 49% premium over the trading price. It finally came out in June. The pair needed 67.5% of the shares to be tendered and only 65.62% of the holders agreed to sell at euros 66/sh. Reaching smaller German holders of Stada in their drugstores and medical offices was difficult, but the process was made more complex by the German rumor mill which focused on the alleged share ownership by Harvard professor Andrei Shleifer.

Shleifer, both Russian-born and Jewish, was a protege of Harvard Pres. Larry Summers. Shliefer was convicted of having defrauded the US government during this period because of conflict of interest during his term as the chief US advisor to Russian privatization programs during the 1990s. His fine was $26.4 mn which Harvard paid during the Summers presidency in 2004, while Prof. Shleifer himself only paid back $2 mn in damages. (Summers wound up fired as Harvard president in part because of paying the fine.) A specialist in behavioral finance, Shleifer salvaged his Harvard career and his wife, Nancy Zimmerman, source of the conflict of interest, now runs Bracebridge Capital. It reportedly supported the bidders from Bain and Cinven both times.

German shareholders were told that Bracebridge was involved in Stada's buy of the US generics business of Mova Labs (of New Jersey) in 2001, Mova's sale to private firm Dava Pharma in 2006, and later Dava's sale to Endo International plc, each time at a higher price- which left the German Stada owners furious. I have no confirmation of any Bracebridge played in these events but a private equity fund typically will buy private unlisted companies such as Dava was.

Now active in investing for the endowments of US universities including Princeton and Yale (but not Harvard), no link can be found between Stada and Bracebridge. But during the first unsuccessful round by Bain and Cinven, the pair agreed to “provide financial and strategic support for possible acquisitions” by Stada and they are in the same business of buying companies, taking them private, and selling them later at a profit.

The second takeover vote was favorable to the bidders because non-German owners of the shares (including me and my readers) tendered while Germans held back. Throughout the bid period the chairman of the Stada supervisory board which refused the “quittance” was Carl Ferdinand Oetker, a member of the Dr Oetker baking powder family which had supported the Nazis, but who himself had begun his career at BHF, a former Jewish investment in Frankfurt, founded by the legendary Carl Furstenburg. He has resigned along with the rest of the board. More (and more sedate) pharma news below for paid subscribers.

 

There will be no blog Monday as it is a US public holiday. I will be preparing my close-of-month stock tables today with yesterday's prices.

 

Louis Navellier, a newsletter writer and fund manager, was charged by our SEC with fraud for false track records overstating investment gains by managed funds at the Reno firm. Your editor just wrote a comment on stockgumshoe.com about a Navallier recommendation in the lithium frenzy, pushing one of our foreign companies discussed below; and more news about Mexican companies dealing with the Houston hurricane. I do not manage any money except my own, because I want to benefit from the First Amendment protection of press freedom.

 

More for paid subscribers follows from other countries but more from Germany: a relic from the Portuguese past in Brazil; Danish drug-makers and others; Latin lithium miners; Hong Kong Internet powerhouses; and a few notes about Houston and Mexico.

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