UDG suitor mulls improved €3.2bn bid to rescue deal

US private equity group Clayton Dubilier & Rice (CD&R) is considering hiking its bid for Dublin-based UDG Healthcare by 5.57 per cent to £2.76 billion (€3.2 billion), after it became clear that its existing offer would run into trouble at a key shareholder meeting on Friday.

UDG said on Friday morning that the suitor “has informed the board of UDG that, following discussions with certain UDG shareholders, it is considering an improved and final offer of 1,080 pence per UDG share”.

UDG announced on May 12th that it had agreed to be acquired for £10.23 in cash per share by CD&R, where the Irish company’s former chief executive, Liam FitzGerald, is a deals adviser.

Deal

However, major shareholders in London-listed UDG, including Allianz Global Investors and M&G Investments, who own almost 11.2 per cent of the company between them, publicly said that they would reject the deal, saying it undervalued the company.

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US hedge fund Elliott Investment Management has also cropped up on the shareholder register with a 3.2 per cent stake. Elliott has form in playing the “bumpitrage” game of exerting pressure on bidders to raise offers for listed companies. Other shareholders are said to have privately signalled they would vote against the deal.

CD&R had structured its bid as a so-called scheme of arrangement, which would have required approval of 75 per cent of voting shareholders at an extraordinary general meeting (egm) at 11am on Friday. It would have become clear as proxy votes were registered in recent days before the meeting that the US private equity firm was going to struggle to get the deal over the line.

UDG decided to adjourn the egm on Friday. “If the possible increased final offer is made, the financial terms will be final and will not be increased, save that [the bidding company] will reserve the right to revise the financial terms of the offer where there is an announcement of a possible offer or firm intention to make an offer for UDG by any third party,” it said.

The board of UDG has indicated to CD&R that if the possible increased final offer is made it intends to recommend it. It also confirmed that it has not received any proposal from a potential rival bidder.

Approval

Goodbody Stockbrokers analyst Gerry Hennigan said that a higher offer of £10.80 per share would likely secure shareholder approval.

Shares in UDG rose as much as 1.8 per cent to £10.65 on Friday morning, having traded consistently above the original offer price since Allianz’s intervention five weeks’ ago.

Established in 1948 in Ballina, Co Mayo as United Drug Chemical Company, a co-operative controlled by a group of pharmacists to secure a reliable supply of medicines, the company has long shed its roots and generated less than 0.4 per cent of its $1.15 billion (€960 million) total sales in the Republic last year.

The company floated on the stock market in 1989 but abandoned its Irish listing in 2012 for a primary quotation on the London Stock Exchange.

The business went through a transformational year in 2016 when it sold its legacy Irish wholesale business and UK-based travel healthcare operation, for €407.5 million.

UDG is now concentrated on two businesses: Ashfield, which provides major drugmakers with outsourced services such as sales reps and healthcare communications; and Sharp Packaging, a provider of outsourced healthcare packaging in an increasingly regulated field for drug serialisation.

Mr FitzGerald presided over much of UDG’s evolution and international expansion as chief executive between 2000 and 2016, overseeing 30 acquisitions during his time. CD&R hired him in 2017 as an adviser to help drive healthcare investments.

UDG, which remains headquartered in Citywest Business Campus in west Dublin and is led by chief executive Brendan McAtamney, employs about 9,000 people in 29 countries.