Hungarian drugmaker wants to up stake in GZF Polfa

Gedeon Richter (GR), the Hungarian pharmaceutical giant that bought a 51% stake in drugmaker GZF Polfa (GZF) from the Treasury Ministry last week, now wants to buy the treasury's remaining stake in the company, GR's managing director Erik Bogsch told the WBJ. "It's all in the treasury's hands now," Bogsch said. Central Europe's second-largest drug manufacturer signed a purchase agreement with the Treasury Ministry to buy a majority holding in GZF, with the state retaining 42% of the firm's shares and employees 7%. A government spokesman said that another sell-off of GZF shares was part of its privatization strategy for the firm. "Gedeon Richter has preemption rights for four years beginning at the end of this year," said Maria Antolak, the director of the Mazowieckie voivodship's treasury department, which negotiated the deal. GR spent zł. 125 million ($30.5 million), or zł. 2.45 million ($598,000) per 1% of shares, to take control of one of Poland's top 10 drugmakers. The sell-off agreement envisages that GR will have to pay the same per-share price (adjusted for inflation) when buying an additional stake in the future.

The agreement obliges GR to spend zł. 70 million ($17.1 million) of the zł. 125 million to upgrade GZF's operations. GR said it would produce at least six new products at its GZF plant in the next five years. The deal also guarantees employment for the firm's 1,060 workforce for the next 42 months. "It's a very long guarantee period," said Radosław Biadoń, a pharmaceutical market analyst at the brokerage Bankowy Dom Maklerski PKO. In addition, the Hungarian investor wants to pump up GZF's marketing arm, which has just 25 representatives for the entire country. "We need to employ new marketing people," Bogsch said. "We're planning to increase the number to some 50 people by the end of this year, and to about 80-90 in the following two years," said Elżbieta Piotrkowicz, GZF's head of marketing. GR already employs 80 marketing employees in Poland. The firm's sales last year reached some $20 million, or two-thirds of GZF's sales. As a result, Gedeon Richter's Polish market share hit 0.8% in 2001, though after the acquisition, the figure will jump to 2%. "Our target is a minimum of 3%," Bogsch said. He added, however, that GR's primary goal for GZF is to transform the Grodzisk-based firm into an exporter. Today, GZF sells only 10% of its products abroad. Last year it earned a net profit of zł. 7.6 million ($1.85 million) on sales of zł. 144 million ($35.1 million).

Going mobile GR is one of several Central European drugmakers that over the past few years have blossomed into major regional players. The company sold 73% of its products abroad last year, helping it post a net profit of $87.1 million on $314 million in sales. The Hungarian investor wants to duplicate this model at its new Polish subsidiary. "We plan to develop (GZF's) exports to Central Europe, CIS (Commonwealth of Independent States) countries and the European Union," Bogsch said. "To the EU, GZF will initially only export ingredients, but it should start exporting finished products in about three to four years." The merger of the firms' international marketing arms will help GZF and GR boost their sales abroad, Biadoń said. "By acquiring a Polish drugmaker (rather than building its own plant in Poland), the buyer can draw a number of benefits," he said. "It gains the subsidiary's distribution network as well as its contacts and experience in the East."