CSL has finally confirmed on the record that it is in discussions with Vifor Pharma over an upcoming deal, as expectations mount that an acquisition and equity raising could be announced by Tuesday night.
Goldman Sachs is understood to be involved as well as Bank of America.
Typically, stocks fall before an equity raising is due, but CSL’s shares have been rallying since news of the pending Vifor transaction on the expectations of strong earnings growth as a result and the stellar reputation of its chief executive Paul Perreault and chairman Brian McNamee.
Shares on Monday closed down $1.04 at $297.27, taking its market value to $136bn.
About half of CSL’s register comprises retail investors that would be eager to participate in a rights issue.
However, the understanding is that the raise will be by way of a placement.
Placements are easier for investment banks to underwrite, although many would argue that a raising for CSL would lend itself to a rights issue structure.
This would enable the large number of retail shareholders to participate and those that do not participate can get value for their rights.
In this instance, experts also believe that investors will not be wall crossed – a move that market experts describe as difficult when it comes to dealing with two listed companies in connection to a mergers and acquisitions transaction, as would be the case with CSL and Vifor.
This was the case when Aristocrat Leisure this year agreed to buy Playtech in the UK and raised $1.3bn through UBS and Goldman Sachs.
A placement will favour institutional investors, and can ruffle the feathers of retail shareholders.
This was the case with Cochlear’s $880m placement last year, where retail investors became vocal about feeling as though they had been left out in the cold.
Bank of America has been leading the advisory for CSL on a potential deal to buy Vifor in Switzerland, currently worth about $11.7bn, and while the suggestion was an equity raising could be on its way worth between $3bn and $4bn, now it has been suggested that the group could be looking to tap the market for about $6bn in cash.
Any raise is likely to involve a slim discount to CSL’s last traded share price, given the popularity of the Australian healthcare champion.
Shares in Vifor have rallied from about $156 to $185 after both groups earlier refused to rule out reports that the pair are in exclusive talks about a deal.
DataRoom revealed in March a potential deal was looming between CSL and Vifor and first reported this month that the pair are now in exclusive talks.
Back in March, the column indicated Goldman Sachs would likely be on any major transaction for CSL while Bank of America is known to be close.
Vifor is working with Richard Girling from Centreview Partners, a long-time adviser to CSL when he was at Merrill Lynch, the investment bank that is now part of Bank of America.
It is also unlikely to be a surprise if Swiss investment bank UBS turns up in Vifor’s corner.
One of the interesting connections between the two groups are that Vifor CEO Abbas Hussain was previously on CSL’s board.
Also, Megan Clark is on the board of CSL and is on the Australian advisory board for Bank of America.
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