Actavis announced today that Claudio Albrecht has been appointed its new CEO, replacing Siggi Oli Olafsson, who had held the position for the last three years, following the departure of Robert Wessman. As far as we are aware, this was a shareholder-driven move, with the aim presumably being to give fresh impetus to Actavis’s restructuring and possibly even to move it back on to an expansionary track.
Having previously been a regional manager at Sandoz and (until 2008) the CEO of ratiopharm, Dr Albrecht’s credentials for the job can hardly be questioned, but the more interesting question is what his appointment means for Actavis’s balance sheet and for its immediate future. It is an open secret that Deutsche Bank put the company on the block in 2009 but was unable to find a buyer, with the main deterrent being the company’s huge debt pile, which was rumoured to have reached well in excess of €5bn including the interest rolled up on the PIK notes. Since then, Actavis’s financial performance is believed to have deteriorated as a result of a plant closure in the US and lower prices in Europe. It was also beaten to ratiopharm by Teva – had Actavis managed to do this deal, Deustche might somehow have been able to spread the company’s debt over a much larger entity, bringing some genuine balance to the balance sheet. As things stand, if Deutsche was unable to find anyone ready to attribute any equity value to Actavis on the basis of the profit forecasts that it was making in 2009, it is hardly likely that it will find one now that the reality has turned out to be so much worse. We therefore assume that Deutsche must have restructured Actavis’s debt so as to give it some financial headroom, since it is hard to see why Dr Albrecht would have been attracted to the job otherwise. The previous team – when not engaged in the abortive sale process – were compelled to devote most of their time to cashflow management in an effort not to breach the company’s debt covenants. In the press release announcing the new CEO’s appointment, Dr Albrecht talks about ‘strong geographic expansion’, a strategy that will surely need a cheque book to execute effectively.
Our overall conclusion from Dr Albrecht’s arrival at Actavis is that Deutsche has decided to hold on to this asset for the time being, and to see if it can trade its way to a valuation that would make it easier for the shareholders to let go. This may well involve a return to the acquisition trail, since the external market environment remains very tough and any ‘quick wins’ from internal restructuring have presumably already been thought of. However, given that Actavis does not appear to have fully digested the very large number of acquisitions that it has made in the past, sorting out the existing company structure will probably be the new CEO’s top priority.