Consort Medical: After King System Sale, Balance Sheet Flush With Cash

Consort Medical (CSRT.L) has sold its King Systems airways management products division to the Danish company, Ambu. The headline $170m figure consists of a $120m upfront payment, with $10m due on the launch of the low-cost King Vision blade and up to $40m as an earn out over three years. The proceeds will be initially used to reduce debt, but clearly acquisitions to bolster Bespak are now on the agenda.


King Systems sold for $120m now and a max of $170m
King Systems is being sold for $170m, of which $120m is payable in cash and up to a further $50m payable in stages over the next three years. The first $10m becomes due on the first commercial sale of the new low-cost King Vision blade (expected in April 2013), the next $20m is contingent on achieving King Vision sales in line with current management expectations, with the final $20m of the earn out due only if significant outperformance occurs. The deal should close in Q113.

Bespak is platform for organic growth and acquisitions
Bespak is once again the core business and the focus for Consort Medical will be on pharmaceutical services. Bespak is well positioned to expand its activities into adjoining segments of the drug-device supply chain and is actively targeting more on-site manufacture and filling projects, with two recent contracts incorporating drug handling and filling (eg the nasal and the Nicoventures nicotine delivery contracts).

Balance sheet now flush with cash
Initially the proceeds will be used to pay down the existing debt but these loan facilities will stay in place. The strategy remains to bolster the core Bespak operations with both organic investment and acquisitions. These investments will seek to exploit the existing skills and expertise and will involve complex design expertise, high volume production and operating in regulated markets.

Valuation: Maintaining our 880-905p valuation range
Whilst the divestment will initially decrease the reported profits, we believe management will actively seek to bolster Bespak’s prospects through both organic investment and acquisitions. We had valued the shares in a range of 880-905p and maintain our view in anticipation of greater vision on likely corporate activity.

To Read the Entire Report Please Click on the pdf File Below.