Drastic restructuring on the table (again) to end Ascendis’s agony

Debt-laden pharmaceuticals and healthcare group Ascendis Health has taken its all-important restructuring and recapitalisation plan a step further. 

The board and management of Ascendis are considering a fire sale of the company’s crown jewel assets in Europe, leaving it with those that are based in South Africa, and a delisting from the JSE after nearly eight years on the local exchange. 

The sale of Ascendis’s profitable European assets – including Remedica (manufacturer of generic pharmaceuticals in Cyprus), Sun Wave Pharma (producer of natural nutritional products in Romania), and Farmalider (a pharmaceutical company in Spain) – is part of the company’s broader plan to raise capital and reform the severely distressed balance sheet. 

A successful sale of these assets will create a smaller Ascendis with three divisions in South Africa: consumer health (includes brands Solal, Vitaforce and Nimue), Pharma (manufacturer of prescription and over-the-counter medicines for coughs and colds, pain, diabetes), and medical devices (manufacture of rapid testing kits). 

On Monday, Ascendis told shareholders that its listing on the JSE is being reviewed because a smaller company that will emerge after the sale of European assets might not afford to be publicly traded. Leaving the JSE will help Ascendis cut costs, mainly listing fees. 

The plan of selling European assets and delisting from the JSE was previously mentioned by Mark Sardi, the former House of Busby head, who was brought in as Ascendis CEO at the end of 2019 to turn its fortunes around. But Ascendis is now seriously considering the two options. 

Company’s financial position and restructuring 

Ascendis’s financial position is scary: the company faces a smothering debt load of around R7-billion, which is more than its market value of R259-million on the JSE. It is shelling out the bulk of its profits just to service debt payments. Every six months, interest payments on Ascendis’s debt increase by up to R350-million. 

The debt (R7-billion) was accumulated by Ascendis to fund its acquisition spree in Europe when the company was flying high, with its share price reaching highs of nearly R30 in September 2016. Today, Ascendis is a penny stock, with its share price finishing at around 54 cents on Monday. 

In a trading update on its operations on Monday, Ascendis said headline loss per share from continuing operations – a key metric for a company’s financial position – would be between 303.7 cents and 343.8 cents in the year to end-June 2021 from a loss of 202.3 cents in the previous year. This suggests that Ascendis might report a headline loss from continuing operations of up to about R1.68-billion when it reports its financial results on 30 September.  

The month of October will be crucial for Ascendis. This is when Ascendis shareholders will be asked to vote for a restructuring and recapitalisation plan that will see the company’s biggest lenders snap up its European assets. The lenders would also inject capital into the company. The lenders that will lead Ascendis’s restructuring and recapitalisation plan are Blantyre Capital and L1 Health. 

Both lenders took on more than a third of Ascendis’s debt by late January 2021 and increased its holding to more than 75% just a week later. Under the proposed transaction, the lenders will exchange their debt interests for Ascendis’s European subsidiaries, Remedica and Sun Wave Pharma, as well as the company’s 49% shareholding in Farmalider. The Ascendis board said it believes that the recapitalisation plan by the consortium of lenders is the best outcome for the company’s restructuring efforts. 

Competing turnaround plan  

But a group of US-based firms, which includes Finn & Co and Caldwell Soames, has tabled a counter-offer for Ascendis, offering to buy 100% of the company. 

The firms plan to invest $20-million (R284.7-million) into Ascendis to bring additional working capital for its growth and stability. But before investing the money, the firms want to reach an agreement with Ascendis lenders to reduce debt in the company – following its recapitalisation – from €15-million (R253-million) to €5-million (R84.4-million). 

The Ascendis board has not recognised the offer by the US-based firms, saying their offer wasn’t firm or formal. Paul Caldwell, the CEO of Caldwell Soames, told Business Maverick that he had been interested in acquiring Ascendis before Karsten Wellner resigned as CEO in 2018.  

Caldwell said Finn & Co and Caldwell Soames are prepared to inject capital into Ascendis if the board allows them to conduct a due diligence process into the company. 

“We believe that Ascendis’s businesses by themselves are healthy and the contribution they make to group revenue and Ebit [earnings before interest and taxes] is significant. We concluded that Ascendis’s financial losses were balance sheet losses [linked to previous acquisitions] and not operational losses.” DM/BM