Proxy advisors vote against Strides Pharma’s consolidation scheme, ET HealthWorld

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Proxy advisors vote against Strides Pharma’s consolidation scheme, ET HealthWorld

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New Delhi: Proxy advisory firms Stakeholders Empowerment Services (SES), Institutional Investors Advisory Services (IiAS) and Institutional Shareholder Services (ISS) recommended that investors vote against a proposal to consolidate certain businesses of Strides Pharma Science and two group companies, claiming the valuation assigned to one of the unlisted affiliates to be high.

Listed Strides Pharma is seeking shareholder approval for a scheme of arrangement among the company, Steriscience Specialties and Onesource Specialty (earlier known as Stelis Biopharma). E-voting began on September 5 and will conclude on Monday, followed by a shareholder meeting on Tuesday.

As part of the scheme, Strides Pharma and Steriscience’s identified contract development and manufacturing organisation (CDMO) business, along with Strides Pharma’s soft gelatine business, will be consolidated under Onesource. Shareholders of Strides Pharma will receive one equity share of Onesource for every two shares held, while Steriscience shareholders will receive 1,515 shares of Onesource for each share held. After the demerger, Strides Pharma’s shares in Onesource will be cancelled and its shareholders will become shareholders of Onesource.

Steriscience, a promoter-controlled entity, has TPG Private Equity as a ********* investor, while Strides Pharma holds a 26.4 per cent stake in Onesource directly and an additional 4.4 per cent through a subsidiary. The remaining stake is held by promoter-controlled entities and other investors.

IiAS, recommending a vote against the scheme, said as per the proposal, the enterprise valuation of Onesource is as high as 39 times its estimated Ebitda for FY25. “While the company expects Onesource’s CDMO business to achieve significantly higher scale and margins, we cannot support the merger at this valuation without a historical track record,” IiAS stated.

SES raised concerns about the valuation methods, which combined the income approach (discounted cash flow method), market approach (comparable companies multiple) and the price of recent investment methods. “The valuation report has not provided any working as to how the valuation under these methods was arrived at, and instead the final figures magically appear out of thin air. SES is of the view that a valuation report must be a document that explains how the valuation of a business was arrived at, including detailed workings and assumptions made.” SES said in a report.

According to ISS, a vote against the resolution is warranted given the significantly higher valuation for the transferee company (Onesource), which might be detrimental to the shareholders of the transferor companies (Strides Pharma Science and Steriscience Specialties). ISS stated that Onesource has been facing significant financial challenges, including considerable losses and poor financial performance. Due to the non-materialisation of their sales, the company had to write off a significant portion of its inventory in FY23, it added.

Strides Pharma did not respond to ET’s queries.

Over the past year, Strides Pharma’s shares have rallied 200 per cent , compared to a 27 per cent rise in the Nifty50 and 51 per cent in the Nifty Pharma index.

The company proposed the scheme to consolidate the CDMO and soft gelatine businesses, aiming to achieve integration synergies for improved supervision.

• Published On Sep 9, 2024 at 12:42 PM IST

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