- Dechra downgrades full year profit on trading headwinds
- Company remains in takeover discussions
- Deal deadline two weeks away
Shares in global veterinary pharmaceutical specialist Dechra Pharmaceuticals (DPH) fell by a tenth to £33.06 on Monday after the company downgraded full year profit guidance for the second time in as many months.
The shares currently sit 18% below the potential £40.70 offer price put on the table by private equity firm EQT Fund Management.
With the shares roughly halfway between the potential takeover price and the undisturbed price, the market is effectively implying the chances of a successful deal being negotiated is now a coin-flip.
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WHAT DID THE COMPANY SAY?
The board reiterated that customer demand continues to be ahead of the underlying market in its main geographies but destocking in the US and UK due to wholesalers managing inventory levels is creating headwinds.
The company also warned the European market appears to be slowing due to the ‘changing macro-economic environment and country specific dynamics.’
Consequently, underlying operating profit for the year to 30 June will be below the £186 million guided at the half year results on 27 February.
Dechra said it remains in discussion with EQT which has until 2 June to make a firm offer under UK takeover rules or else it is prohibited from making another offer for six months.
Management went out of their way to dismiss the current troubles as ‘short term trading headwinds’ and emphasise the strong fundamentals of the business.
‘Our strategy is robust, including a very attractive development pipeline of new products to underpin our future growth, supported by a strong balance sheet.’
WHAT HAPPENS NEXT?
The latest update is clearly unwelcome and not helpful to management while the company is negotiating a takeover which was initially pitched at a 47% premium.
It would not be a surprise if EQT were pushing for a lower offer price to account for higher short-term risks. Given the deadline is only two weeks away it makes sense for both parties to agree an extended period of negotiations.
For shareholders the risks are finely balanced. If EQT walks away the shares will probably fall back to where they were trading before the approach. There are rarely any easy decisions in investing.
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