• Shares in Recordati trade above EUR 51.29 offer
• Palliser, other minorities push for improved terms
• Acceptance threshold at 66.67%; waivable at buyers’ discretion

Milan-listed drug maker Recordati is attracting increased attention as CVC and Groupe Bruxelles Lambert’s (GBL) EUR 10.7bn equity value tender offer enters its final few weeks.

The offer, which values Recordati’s shares at EUR 51.29 apiece, was announced in May and opened for acceptances on 31 August. It is set to remain open until 15 October.

Recordati’s shares have persistently traded above the offer price and yesterday (21 September) closed at EUR 52.85, about 3% higher.

Growing shareholder dissent suggests CVC-GBL may need to woo minority investors with an improved offer price to secure broader support for the deal, and valuation headroom versus peers support the case for an offer bump, according to an analysis by The Morning Flash.

CVC controls about 46.8% of Recordati’s equity and has committed its holdings to the offer. Co-investor GBL holds a further 3.25% stake in the business. The offer is subject to a minimum acceptance threshold at 66.67% of the target’s share capital.

The current per-share offer of EUR 51.29 values Recordati at about 13x 2025 EBITDA. It represents a modest premium of 12.89% to the undisturbed share price on 25 March.

The company’s peer group trades in a range between 8x and 17x EBITDA for the comparable period, with an average valuation of 14x.

Thus, there is some valuation headroom for an offer bump.

Applying the average peer valuation of 14x, Recordati could be valued at EUR 13.8bn, or about EUR 56.60 per share.

Activist investor Palliser Capital, which owns an undisclosed minority stake in Recordati, published an open letter to the company’s board last week, arguing that a fair offer for the business should be no less than EUR 60 per share.

A bid at that level would value Recordati at about 15x 2025 EBITDA, i.e. towards the top end of peer valuation range.

Six minority investors, including several long-only investors, are opposed to the transaction, according to a Financial Times report earlier this month (12 September).

That is on top of opposition from Recordati’s four independent directors, who have also deemed the offer to be inadequate.

CVC’s own record of offer bumps is mixed. In February, it raised its offer for Japan’s Mandom by 58% to JPY 3,105 per share after shareholder pushback, although a competing KKR proposal may have been the biggest factor behind that move. In contrast, the sponsor held firm on its EUR 22 per share bid for Frankfurt-listed CompuGroup Medical last year, as it cleared the minimum acceptance threshold of 17% – far below the 66.67% needed to get the Recordati deal across the line.

Recordati presents a different dynamic, however. While the consortium is targeting 66.67% acceptance, that condition is waivable at the buyers’ discretion. The offer document does not specify a lower threshold below which the consortium would not proceed with the transaction, allowing CVC and GBL to decide for themselves whether to waive the condition once the acceptance results are known.

This ability to waive the acceptance condition gives the bidders room to resist demands for a higher offer – particularly at the level Palliser is arguing for. However, with Recordati trading above the offer price and some shareholders holding out for more, there may yet be room for an improved bid below Palliser’s EUR 60 per share demand.

*Peer group includes Ipsen, UCB, Swedish Orphan Biovitrum (Sobi) and Orion Pharma