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Doubts surface over 'opportunistic' £4.6bn Dechra bid

Private equity firm pounced on pet care business at low point for share price and shareholder morale
May 4, 2023

Shareholder discontent is brewing over private equity firm EQT’s 4,070p-a-share bid for Dechra Pharmaceuticals (DPH). Three of the company’s institutional investors, including top 10 shareholder Royal London Asset Management, have now publicly denounced the approach as "opportunistic". But analysts think adverse market conditions mean the offer is likely to be accepted. 

The bid, which also includes the Abu Dhabi Investment Authority as a co-investor, values the animal medicines group at £4.6bn. However, critics argue that the shares have been deflated in recent months by new investments. “We don’t believe [the bid] takes into consideration the recent strategic enhancements of the business and the value of the pipeline,” said a statement from Newton Investment Management.

In the past 12 months, Dechra acquired two US-based veterinary pharma firms, Piedmont Animal Health and Med-Pharmex. The shares last traded above the 4,070p offer price in April last year, before the dilutive impact of the acquisitions was realised. Analysts with broker Numis wrote that the stock could bounce back across the 4,000p threshold in the next year or so. However, “it’s possible shareholders may elect to take the cash now, in the event a firm offer materialises”, they added.

Max Herrmann, an analyst at Stifel, noted possible parallels with Pfizer’s (US:PFE) failed £55-a-share bid for AstraZeneca (AZN) in 2014. The UK pharma giant now trades at nearly £120 a share. “Investors would have taken that deal if they were allowed to,” Herrmann said. “But were they better off not taking the offer even though it was a nice premium at the time? Yes definitely.”

The question is whether Dechra’s shareholders would be prepared to stick by the business as it grows – and the answer is inevitably complicated by recent turbulence in portfolios. The wider veterinary pharma sector has also seen a slowdown following an uptick in investor enthusiasm during the pandemic. This combination of factors is held to blame for Dechra’s sagging share price in recent months.

“A year ago, EQT wouldn’t have got away with this bid, because the share price was higher,” Herrmann said. “And they wouldn’t get away with it in a couple of years, because the share price would be higher then, as well.”

EQT has until 5pm on 11 May to announce whether it intends to proceed with the offer or walk away. It is already the largest shareholder in IVC Evidensia, the largest veterinary care provider in Europe.