acquisitions

Bausch Health tries to balance debt-reduction and and acquisitions as it ‘pivots to offence’ in 2019

Bausch Health Companies Inc.’s management is striving to find a balance between debt reduction and “bolt-on” acquisitions as it emerges from the shadow of numerous lawsuits.

Since Joseph Papa became the company’s CEO in 2016, it has shifted away from an aggressive acquisition strategy and focused on slashing debt, which fell below US$25 billion as of Dec. 31 after US$1 billion of reductions in 2018.

But for 2019, Papa said Bauch plans to aims to ramp up investment in research and development by about 10 per cent while allocating US$1 billion toward debt reduction and acquisitions.

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Papa said subsidiary Bausch & Lomb, which generates more than half of the company’s revenue, is positioned to capitalize on rising rates of myopia (nearsightedness) and other eye conditions.

“Environmental factors like increased screen time with laptops, cellphones are responsible for the high rates of myopia we are seeing in Hong Kong and other parts of the world,” Papa said.

But chief financial officer Paul Herendeen said on a conference call with investors that “we need to be incredibly judicious” in spending for business development.“ .

“We don’t have a big chequebook. We just don’t, and that’s the way it is until we can change it,” Herendeen said.

Headquartered in Laval, Que., near Montreal, the former Valeant Pharmaceuticals has spent the past few years mired in investigations and lawsuits, including antitrust litigation and a fraud probe in California.

Those efforts have resulted in settlements or dismissals for about 60 cases as of the end of last year, with most of the legal issues now resolved, according to a spokeswoman.

For the full year, Bausch’s net loss – reported in U.S. dollars – ballooned 42 per cent to $4.15 billion in 2018, versus $2.4 billion in 2017. Revenue fell to $8.38 billion and 2017 revenue of $8.72 billion

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In line with some analysts’ forecasts, Bausch predicted revenues of between US$8.3 billion and US$8.5 billion for 2019, partly on the strength of its seven major products, all launched in the last few years.

The so-called “significant seven,” which include products that treat conditions ranging from glaucoma to constipation, raked in revenues of about US$150 million last year, twice as much as in 2017. Bausch foresees another 100 per cent sales leap to US$300 million this year.

“Though the guidance range is higher than we anticipated, we continue to see room for upward revisions,” analyst Douglas Miehm wrote in an RBC Dominion Securities research note.

In its outlook for 2019, the company said it expects adjusted earnings before interest, taxes, depreciation and amortization in a range from US$3.35 billion to US$3.5 billion.

Despite organic growth across the company, Bausch saw revenue slide two per cent to $2.12 billion in the quarter ended Dec. 31, compared to $2.16 billion in the fourth quarter of 2017. The disconnect is due to divestitures and newly defunct businesses, Bausch said.

Bausch reported a loss of $344 million or 98 cents per share in its latest quarter compared with a profit a year ago. That compared with a profit of $513 million or $1.45 per share in the last three months of 2017.

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On an adjusted basis, it earned $368 million for the quarter compared with an adjusted profit of $347 million a year earlier.

Bauch Health shares were down nine per cent at t $30.29 at mid-afternoon on the Toronto Stock Exchange.

How Mergers And Acquisitions Will Redefine The Cannabis Space In 2019

Nothing makes investors more excited than Mergers and Acquisitions. A big M&A has the potential to completely change an industry and provide a big pay-off for investors. Companies like Altria Group Inc (NYSE: MO) and Constellation Brands Inc. (NYSE: STZ) are looking to enter the cannabis sector via innovative brands like Canopy Growth Corporation (NYSE: CGC). Other, lesser known companies, like PotNetwork Holdings, Inc., are also well placed to take advantage of the interest of corporate giants. 

Big brands want to enter the cannabis sector 

Canadian legalization was just the beginning. The cannabis sector is beginning to snowball and attitudes in major markets are rapidly shifting in favor of legalization. In the United States, the Federal Government has already taken steps to legalize CBD products via the iconic Farm Bill and attitudes across major European economies continues to relax. The global legal cannabis market is predicted to be worth $146.4 billion by 2025. Cannabis legalization represents an opportunity for industries like tobacco and alcohol. Both industries have experienced declining sales, and recreational marijuana offers a way to reverse this situation. They will have to compete with existing operators and other entrants interested in the ancillary cannabis sectors, CBD for example. Companies who don’t move now will be forced to pay a premium and there’s already been a flurry of activity. 

Altria Group Inc. is Big Tobacco’s First Mover

Times have never been tougher for Big Tobacco. As public health campaigns take hold, smoking rates in developed economies have plummeted. The industry has also been disrupted by the emerging e-cigarette market, which threatens to further cut into their bottom line. 

Altria has already taken steps to combat the impact of e-cigarettes with a direct investment of $12.8 billion in Juul. The investment gives Altria a 35% stake in the largest e-cigarette producer. Altria’s investment in Juul is a clear attempt to take ownership of a potential threat but they also see real opportunity in the cannabis sector. 

In December 2018 Altria made their first foray into the cannabis sector with a $1.8 billion investment in Cronos group. This secured the tobacco giant an ownership stake of 45% in the group. 

The deal was mutually beneficial. Altria gained an ownership stake in a potential rival and Cronos Group gained access to Altria’s expertise and a significant capital injection. The cannabis firm was particularly interested in Altria’s experience with vaping and e-cigarettes and saw an opportunity to develop customized vaporizers for their cannabis products. 

Cannabis and tobacco companies represents natural partnerships. Tobacco companies have experience in dealing with complicated regulatory hurdles and have access to vast distribution networks. 

Other major tobacco companies, like Philip Morris International, have yet to make their first moves into the marijuana industry. Philip Morris is more interested in promoting its IQOS heated-tobacco system but other Big Tobacco companies will soon be forced to follow in Altria’s footprints or be left behind. 

Constellation Brands Is Betting on Cannabis Beverages

Like Big Tobacco, alcohol firms have been struggling with declining demand for their products across developed markets. Health concerns surrounding alcohol have hastened declining drinking rates.

In the UK, the number of people drinking more than 14 units fell by 6% in 2016 and beer sales in the United States have fallen for the last 5 years straight. Sales of non-alcoholic beverages have skyrocketed in response and many alcohol companies are developing their own alternatives.

Beverage companies are particularly interested in marijuana infused beverages, a market that is predicted to be worth 0 million in the US alone by 2022. In 2016, Constellation brands secured a 38% stake in Canopy growth through a massive billion investment. This move placed marijuana at the heart of Constellation’s growth strategy.

Constellation’s incoming CEO Bill Newlands stated that he believes the emerging cannabis space represents one of the most significant global growth opportunities in our lifetime during a speech to investors.Initially, Constellation will be focusing on the Canadian market as it is not yet legal to sell THC products in the United States, but that doesn’t mean that the company is not eyeing up opportunities south of the border.The Farm Bill has opened up incredible opportunities for cannabis companies to claim a stake in the lucrative U.S. market. Canopy Growth in particular, has secured a Hemp License in New York and plans to make investments of 0 million or more in the United States Hemp industry.For its part, Constellation brands has shown interest in creating CBD infused beverages for the U.S market. Canopy Growth is already one of the world’s largest CBD producers so both companies are in a good position to take advantage of this emerging market. 

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PotNetwork Holdings is a Tempting Target After the Farm Bill

The race to identify new acquisition targets is on. New entrants into the cannabis market are looking to take advantage of its many ancillary industries, in particular CBD. Investors and big companies are likely eyeing small, relatively established, players like PotNetwork Holdings with growing interest. 

PotNetwork are a rapidly expanding operator in the American CBD market. They have been quietly building a loyal customer base, and the passing of  the Farm Bill represents an incredible opportunity for the company. Thanks to its passage, the CBD sector is predicted to be worth .2 billion by 2022 and grow faster than any other cannabis sub-sector. 

PotNetwork is one of the few companies who have an established presence in this emerging market, a fact cited by Harbinger in their January research report. 

The analyst believes the company is a strong speculative, or potential, buy and gives it a price target of between $0.192 and $0.337 for the next 12 months. The company has proven itself capable of impressive growth. Its subsidiary, Diamond CBD, had generated over .1 million in revenue by Q3 2018, surpassing all of its combined revenues in 2017. 

POTN has also taken pains to make connections with industries that are likely to be interested in a CBD acquisition. The company had a strong presence at the Tobacco Plus Expo in Las Vegas. This show is important in the tobacco industry and is the first real “buying” show of the year for professionals in the sector. 

2019 Will Change the Cannabis Landscape Forever

For investors, the cannabis sector is entering a particularly exciting phase. Not only will we see big players entering the sector but there will also be a series of consolidations by large cannabis firms seeking to compete with new entrants.

Companies and investors will show increasing interest in ancillary industries, in particular the CBD sector. Cannabis companies raised $13.8 billion in 2018 four times more in 2017. It is likely that this trend will accelerate during what is sure to be an exciting year for cannabis operators. 

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Acquisitions boost La-Z-Boy sales 13%

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An exterior photograph of a La-Z-Boy store in Troy, February 19, 2019. (Photo11: John Greilick, The Detroit News)

La-Z-Boy Inc. reported Tuesday a 13 percent increase in sales year-over-year for the third quarter of its 2019 fiscal year.

The Monroe-based furniture manufacturer benefited from the acquisition of e-commerce retailer Joybird and 10 La-Z-Boy Furniture Galleries stores in Arizona and Massachusetts from the previous quarter, translating to a 137 percent increase in net income of $29 million on $468 million in sales.

Changes to employee benefits and a legal settlement during last year's third quarter also contributed to the increases. Earnings per share was 61 cents, up 144 percent.

La-Z-Boy saw sales increase 26.7 percent in its retail segment to $159 million. Acquisitions and same-store sales rose 6.7 percent, helping to double the division's operating income.

"Within the stores, our retail team is professionally executing our strategies while consumers are responding positively to our product and service offering," La-Z-Boy CEO Kurt Darrow said in a statement. "These efforts led to the base stores performing at a high level in what is typically our largest quarter for Retail, while the recently acquired Arizona stores also delivered very strong results. Additionally, we remain excited by the potential of Joybird which continues to exhibit fast-paced growth."

The company's upholstery segment increased 4.2 percent in sales to $334 million, driven by changes in price and products, according to a news release. Meanwhile, its casegoods segment grew 3.1 percent to $28 million in sales with increased floor space at retail partners.

Darrow added that the quarter's generation of $45.4 million in cash that ended the quarter with $101.6 million in cash and cash equivalents position the company to make further investments and grow the company.

Earnings were released after Tuesday's stock market closed. The company's shares for the day closed up 2.3 percent. The manufacturer's stock is down less than 1 percent over the past year.

bnoble@detroitnews.com.