Sigma warns of more red ink
September 16, 2010
SIGMA Pharmacuticals today
alerted investors that it expects to
have to write down the value of its
Pharmaceuticals Division by up to
$270 million when it announces its
first half results later in the month
(PD breaking news).
The company said that even
though it only has a non-binding
agreement with South African firm
Aspen Pharmacare for the sale of
the division, the indicative price of
$900 million means that Sigma
must account for the much lower
valuation of the business than
previously estimated.
In July Sigma announced that it
expected to make between $190
and $200m profit, and this latest
$270m deficit is likely to draw the
struggling pharmaceutical
manufacturer back into the red.
“Under the relevant accounting
standards Sigma is required to
review the carrying value of its
relevant cash generating units,
which includes the Pharmaceuticals
Division,” the company said.
The writedown will come despite
not reaching final agreement with
Aspen, with the deal for sale still
under negotiation and subject to
formal documentation, with the
only agreement being that Sigma
will exclusively deal with Aspen until
15 October.
Sigma said it intends to release its
half year financial statements on 29
September, with today’s
announcement following
discussions with its auditors as to
the timing of recognition of the
accounting implications of the sale.
“This will have a material impact
on Sigma’s full year results,” the
company said, adding that this in
turn was likely to trigger the ‘net
asset covenant’ under its syndicated
banking facility.
“Sigma has been in ongoing
discussions with its lenders about
the sale and the prospect of this
adjustment, and continues to work
constructively with them in relation
to the provision of the relevant
waivers required,” the company said,
adding that it intends to use part of
the proceeds of the sale to
significantly reduce its debt.
Sigma’s board said it was
“determined to accept the Aspen
proposal to secure the Company’s
funding position into the future”.
The move follows the March
bloodbath at Sigma after it wrote
off the carrying value of its generics
business by $424 million, leading
to the eventual resignation of longtime
ceo Elmo de Alwis and
pending threats of a class action
from investors.
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