Patheon to resuscitate thanks to $150m rescue

Patheon said last week that it has entered into a definitive agreement with JLL Partners under which the equity firm will purchase convertible preferred shares through a private placement. The transaction is subject to shareholder approval, but Patheon is confident that this proposed deal is the first vital step in rebuilding the value of the company in order to make it "more competitive and more profitable." The company intends to use the net proceeds of the investment - expected to be around $138m - to pay down a portion of its outstanding debt of $238m under its existing North American credit facilities. "In JLL Partners, we have found an experienced long-term investor who recognises the strong fundamentals of Patheon's business and shares our goal of building greater sustained value for all of our shareholders,"​ said Peter Green, Patheon's chairman. Last September, the Toronto-based company announced that it had established a committee to evaluate a range of strategic and financial alternatives for the company, and has since then been in discussions with several parties regarding various options. "As part of the strategic alternatives review process, the special committee of the board examined all available options, including the potential sale of the company. This investment by JLL Partners was the best available arrangement for our shareholders,"​ said Green, who is also chair of the committee. This cash injection could represent the light at the end of the tunnel for Patheon, who has experienced a tough year in 2006. Last December, the company announced a net loss for the year of $288.2m compared to earnings of $21.6m the previous year. The difficulties for the company were largely down to its troubled Puerto Rico site, which it gained as part of the acquisition of contract manufacturer Mova Pharmaceutical in November 2004. The company foresaw difficulties after receiving a warning letter from the Food and Drug Administration (FDA) in September 2005 regarding its production of Abbott's oral antibiotic, Omnicef (cefdinir). Coupled with other manufacturing problems at several of the company's other sites, lower demand for over-the-counter manufacturing services, and deferred client orders, the company's predicament led to a year of disappointing financial results. Green said that without the JLL proposed transaction, the company's ability to refinance its debts would be seriously restricted. Patheon intends to seek shareholder approval at its upcoming annual meeting of shareholders on 19 April.