This morning, Valeant announced it would sell its iNova Pharmaceuticals business to funds advised and managed by Pacific Equity Partners and The Carlyle Group for (U.S.) $930-million in cash.
“The sale of iNova is part of the company’s ongoing efforts to both simplify our operating model and strengthen our balance sheet,” said CEO Joseph C. Papa. “We will continue to evaluate opportunities that will enable us to deliver on our commitments and unlock value for shareholders.”
Maruoka says this is a positive, if minor, development.
“We believe this is a good strategic move, as iNova was geographically non-core and not a central growth driver; nonetheless, we believe that this transaction is neutral to Valeant’s leverage ratio,” says the analyst. “iNova has grown to sell Rx and OTC products in 15 countries around the world and was originally purchased as Valeant’s Australian business in 2011 for A$700 million. Although details were not provided, we estimate that iNova generates ~$125 million of EBITDA, suggesting a ~7.5x multiple. And, while we view this transaction to be overall positive (bringing the company closer to its goal of $5 billion of debt reduction by early next year), we believe that it again underscores the challenges of driving accretive divestitures given Valeant’s elevated leverage.”
In a research update to clients today, Maruoka maintained his “Hold” rating on Valeant Pharmaceuticals, but raised his one-year price target on the stock from (U.S.) $12.00 to $14.00, implying a return of 7.3 per cent at the time of publication.
Maruoka thinks Valeant will generate EBITDA of $3.55-billion on revenue of $8.76-billion in fiscal 2017. He expects those numbers will improve to EBITDA of $3.85-billin on a topline of $9.11-billion the following year.
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