Wedding bells for Jelfa
Then came reports that Jelfa has indeed as many as four foreign suitors, including one Italian and one American. The treasury, however, is giving away no clues as to who will finally win Jelfa's hand.
Recently exited by private equity fund Enterprise Investors, Polfa Kutno is an ex-state owned producer, reinvented as a distributor of branded generics, whose financial results continue to improve year on year. Net profits of zł.30.5 million for 2003 are up by a third on results for 2002, which were, in turn, up 30 percent on the year before. Jelfa, still under state control, has for years performed badly. And though a recently begun restructuring process has significantly raised overall performance, operating margins and net profits for 2003 are both down on 2002.
The attraction for Polfa is the growth opportunities Jelfa offers in a market crowded with powerful foreign concerns. While Jelfa's complementary portfolio of medicines and state-of-the-art laboratory could develop Kutno's portfolio, more attractive still are Jelfa's export contacts in former Soviet markets that Kutno's sales and marketing apparatus would no doubt like to get their hands on.
It's the local advantages a merger could bring to both firms, however, that Polfa Kutno press-spokesman Krzysztof Kouyoumdjian is keen to stress: "Currently we are domestic number 14, and Jelfa is down in the twenties, but together we would be in the top ten with a combined market share of, say four percent."
In a sector where even the leader, GlaxoSmithKline, controls only eight percent while the biggest Polish-owned company, Polpharma, has just five percent of the market, this would be a significant status jump for both parties.
Jelfa, though, has other ideas. An established western investor could bring access to EU markets, which, considering the cost of marketing and of registering drugs by EU standards, will remain inaccessible to most domestic firms long after May 1. Foreign know-how, could also help exploit Jelfa's high-class production facilities.
And according to Hanna Kędziora, stock analyst at Bre-Invest, the attraction is mutual, "Jelfa's contacts in the Eastern European markets could be very attractive to western concerns," she says.
Other analysts, though, point out the hazards facing any foreign investor. A mere 30 percent of Jelfa would not be enough for any investor, they say, but buying up the government's share would present much more of a risk to any other strategic investor than to Polfa Kutno, which has shareholders in common with Jelfa.
"Kutno has the advantage that it could very easily accomplish a merger," says Tomasz Bardziłowski, analyst at DM BZ WBK, "Whereas any other company that had bought up the government's share would have to pay a big premium to get a bigger piece."
No doubt driven by such speculations, Jelfa shares have already increased in price by 25 percent since Kutno announced its bid, a fact which may affect decisions on all sides.
In Tomasz Barzilowski's view, paying the premiums involved might even prove more expensive for a foreign investor than simply starting up operations in Poland from scratch.
Kutno, meanwhile, has about zł.45 million to spend on the investment which, by Kutno's own evaluation, is worth about zł.100 million. While pointing out that the firm has the credit access for such an acquisition, Polfa president Janusz Guy stresses that even Kutno won't be holding out for Jelfa at any cost.
"The timing is as crucial as the price," he adds, "and if the government has no answer by the end of March, we have alternative plans, which could involve both other acquisitions and other forms of co-operation."
As the interested parties wait on the government's decision, Krzysztof Kouyoumdjian is confident that Polfa's offer is in the government's interests: "A strong Polish-owned concern which could supply the public with generic alternatives to innovative drugs would fall in line with the government's policy regarding reimbursed drugs," he says. It's a view supported by the fact that Jelfa was at one point ear-marked for inclusion in the government's plans to create a powerful state-owned pharmaceutical holding.
According to Hanna Kędziora, though, drugs politics is now less important to the government than fast cash. "The decision will be determined by the price," she says.
Recently exited by private equity fund Enterprise Investors, Polfa Kutno is an ex-state owned producer, reinvented as a distributor of branded generics, whose financial results continue to improve year on year. Net profits of zł.30.5 million for 2003 are up by a third on results for 2002, which were, in turn, up 30 percent on the year before. Jelfa, still under state control, has for years performed badly. And though a recently begun restructuring process has significantly raised overall performance, operating margins and net profits for 2003 are both down on 2002.
The attraction for Polfa is the growth opportunities Jelfa offers in a market crowded with powerful foreign concerns. While Jelfa's complementary portfolio of medicines and state-of-the-art laboratory could develop Kutno's portfolio, more attractive still are Jelfa's export contacts in former Soviet markets that Kutno's sales and marketing apparatus would no doubt like to get their hands on.
It's the local advantages a merger could bring to both firms, however, that Polfa Kutno press-spokesman Krzysztof Kouyoumdjian is keen to stress: "Currently we are domestic number 14, and Jelfa is down in the twenties, but together we would be in the top ten with a combined market share of, say four percent."
In a sector where even the leader, GlaxoSmithKline, controls only eight percent while the biggest Polish-owned company, Polpharma, has just five percent of the market, this would be a significant status jump for both parties.
Jelfa, though, has other ideas. An established western investor could bring access to EU markets, which, considering the cost of marketing and of registering drugs by EU standards, will remain inaccessible to most domestic firms long after May 1. Foreign know-how, could also help exploit Jelfa's high-class production facilities.
And according to Hanna Kędziora, stock analyst at Bre-Invest, the attraction is mutual, "Jelfa's contacts in the Eastern European markets could be very attractive to western concerns," she says.
Other analysts, though, point out the hazards facing any foreign investor. A mere 30 percent of Jelfa would not be enough for any investor, they say, but buying up the government's share would present much more of a risk to any other strategic investor than to Polfa Kutno, which has shareholders in common with Jelfa.
"Kutno has the advantage that it could very easily accomplish a merger," says Tomasz Bardziłowski, analyst at DM BZ WBK, "Whereas any other company that had bought up the government's share would have to pay a big premium to get a bigger piece."
No doubt driven by such speculations, Jelfa shares have already increased in price by 25 percent since Kutno announced its bid, a fact which may affect decisions on all sides.
In Tomasz Barzilowski's view, paying the premiums involved might even prove more expensive for a foreign investor than simply starting up operations in Poland from scratch.
Kutno, meanwhile, has about zł.45 million to spend on the investment which, by Kutno's own evaluation, is worth about zł.100 million. While pointing out that the firm has the credit access for such an acquisition, Polfa president Janusz Guy stresses that even Kutno won't be holding out for Jelfa at any cost.
"The timing is as crucial as the price," he adds, "and if the government has no answer by the end of March, we have alternative plans, which could involve both other acquisitions and other forms of co-operation."
As the interested parties wait on the government's decision, Krzysztof Kouyoumdjian is confident that Polfa's offer is in the government's interests: "A strong Polish-owned concern which could supply the public with generic alternatives to innovative drugs would fall in line with the government's policy regarding reimbursed drugs," he says. It's a view supported by the fact that Jelfa was at one point ear-marked for inclusion in the government's plans to create a powerful state-owned pharmaceutical holding.
According to Hanna Kędziora, though, drugs politics is now less important to the government than fast cash. "The decision will be determined by the price," she says.
