CSL’s $16.4bn offer for Vifor Pharma wins cautious backing

Investment banks have warily backed CSL’s $16.4bn takeover bid for Vifor Pharma, but some wonder if the acquisition will be a good fit.

Citi analysts told clients it was too early to tell whether Vifor would be a good fit for CSL considering the difference in products and other uncertainties. Picture: Tim Carrafa

Investment banks have warily backed CSL’s $16.4bn takeover bid for Vifor Pharma, a European renal treatments company, and say the Australian pharmaceutical giant’s management team have “earned the right to be given the benefit of the doubt”.

But Citi analysts told clients it was too early to tell whether Vifor would be a good fit for CSL considering the difference in products and other uncertainties.

“One of the quandaries for CSL is that it is very large in the plasma market, but antitrust laws preclude it from meaningful M&A in its core business,” Citi’s John Deakin-Bell and Matthieu Chevrier wrote on Tuesday.

“We are yet to fully understand the medium-term revenue growth rate of Vifor. It is complicated by the pandemic and new products, which we need to investigate further.”

But they said CSL had undertaken a number of successful acquisitions in its history, including Zentrallaboratorium in 2000, Aventis Behring in 2004 and Seqirus in 2005 – “meaningful and a major success”.

The deal, the fourth largest local M&A deal this year, also involves the largest ever equity raising apart from the Telstra float in three parts two decades ago.

The Vifor board has unanimously recommended shareholders accept the $US179.25 ($252) per share offer. Vifor’s largest shareholder, Swiss billionaire Martin Eber, has already agreed to sell his 23.2 per cent stake. Part of the attraction for CSL a chance to expand its portfolio – focused on treatments for haemophilia, primary immune deficiencies and neurological disorders – which is heavily reliant on blood plasma. Another is Vifor’s partnership with Fresenius Medical Care, which provides kidney dialysis services at 4000 outpatient centres.

CSL’s factory at Broadmeadows in Victoria. Picture: Tim Carrafa

Sean Laaman at Morgan Stanley told his clients that key rationales for the deal included exposure to the renal market, the ability to cross-sell Vifor products into CSL geographies and the mitigation of potential risks associated with existing products through new launches.

“CSL’s business is currently experiencing depressed plasma collections, which we see as transient,” Mr Laaman wrote.

“However, there may be medium to long-term disruption risk from ‘FcRn’ and influenza vaccine manufactured via mRNA technology. In theory, diversification could be wise, although it could lead to near-term derating until any potential synergies are evident to the market.”

The Citi analysts also warned that new products in Vifor’s development pipeline were not guaranteed to be successful and might not have the same pricing power as CSL’s plasma business.

The offer is subject to a minimum acceptance rate of 80 per cent of Vifor shares, and the deal represents a 40 per cent premium to the pre-bid price. CSL shares have remained in trading halt as the company raises $6bn. They last traded at $297.27 on Monday.

“Overall, we see the strategic rationale for the transaction as utilisation of CSL’s global presence, R&D capabilities and scale to grow Vifor’s renal franchise, while also providing depth to CSL’s therapeutic areas,” Macquarie analysts said.

“The transaction also offers favourable EPS accretion and improved free cashflow generation.”

Meanwhile, Ord Minnett’s private client research team said CSL had “used its highly valued shares and low-cost debt to fund the acquisition of an attractive new source of growth”.

“On one level this signals the plasma franchise growth is moderating, while on another we are confident in the management team’s ability to maximise the growth opportunities offered by Vifor franchises.”