Brazil’s Hypermarcas pays $1.5 billion for drugmaker

By Guillermo Parra-Bernal and Elzio Barreto

SAO PAULO (BestGrowthStock) – Hypermarcas, the largest Brazilian maker of personal hygiene products, said it would buy pharmaceutical company Mantecorp for 2.5 billion reais ($1.5 billion), a deal that will make it the country’s second-largest drugmaker.

The Sao Paulo-based company said in a regulatory filing late on Sunday that 600 million reais would be paid in cash and the rest would be paid through the issuance of 78 million Hypermarcas shares, worth about 1.9 billion reais at Friday’s closing price.

The deal is in line with Hypermarcas Chief Executive Officer Claudio Bergamo’s plan to grow on the over-the-counter pharmaceutical market, where margins are widening fast thanks to a buoyant job market and rising household income.

Hypermarcas (HYPE3.SA: ) shares on Monday posted their biggest intraday tumble since early February on worries that the company could be paying too much to buy rivals. Analysts had conflicting views over the price being paid for Mantecorp and the immediate and long-term benefits of the deal.

While analysts at Banif Investment Bank and Raymond James lauded the transaction, saying it should boost earnings at Hypermarcas, UBS analyst Gustavo Piras Oliveira said the deal looked expensive at first glance.

Oliveira estimated Hypermarcas could be paying 14 times the value of Mantecorp as a percentage of operational profit — a gauge known in finance as enterprise multiple. “We view these multiples as high,” Oliveira said.

The acquisition helps Hypermarcas add a handful of over-the-counter medicines such as Polaramine and Coristina-D to its existing portfolio of beauty care and personal hygiene products, drugs and processed foods.

Mantecorp, controlled by Brazil’s Mantegazza family, is expected to end this year with revenue of 715 million reais.

Banif estimated that the transaction, which includes a large issuance of shares that would be subscribed by the Mantegazzas, could lead a dilution in earnings per share of about 14 percent to minority shareholders.

After the transaction, minority shareholders will own 56.2 percent of Hypermarcas shares, up from 50 percent previously. Igarapava, a holding company controlled by tycoon Joao Alves Queiroz Filho, and the controlling bloc surrendered some of their shares to the Mantegazzas.

Hypermarcas shares dropped as much as 6.5 percent to 23.05 reais in early trading Monday. They recouped some of those losses and traded at 23.20 reais at midday. The stock reached an all-time-high of 27.89 reais on December 1.

Hypermarcas, which has grown with nearly 40 acquisitions since its founding in 2000, has bought almost a dozen companies over the past year in the over-the-counter pharmaceutical, food, personal hygiene and home care industries.

Hypermarcas said in a presentation that the Mantecorp acquisition could generate 500 million reais in goodwill, helping the company reduce tax payments in future quarters.

($1=1.713 reais)

(Reporting by Elzio Barreto; editing by John Wallace)

Brazil’s Hypermarcas pays $1.5 billion for drugmaker