IPO Report: Phibro Animal Health (PAHC)

Phibro Animal Health ($PAHC) is a global diversified animal health and mineral nutrition company headquartered in Teaneck, NJ.

Twelve other companies are scheduled for the week of April 7, 2014.  The full IPO calendar is available at IPOpremium.

The manager and joint managers are BofA Merrill Lynch, Morgan Stanley, and Barclays.  The co-managers are Guggenheim Securities, Macquarie Capital, and Cantor Fitzgerald.

PAHC scheduled a $200 million IPO with a market capitalization of $662 million at a price range midpoint of $17 for Friday, April 11, 2014 on the Nasdaq.  SEC Filings

Overview

PAHC is a 40 year old global diversified animal health and mineral nutrition company.

Valuation

Glossary

Conclusion

Thiry-seven percent of the IPO is for selling shareholders, that's a relatively high percentage. Intends to pay a 2.3 percent annual dividend at the price range mid-point, starting in the July, 2015 quarter.

Priced at 1 times sales, 40 times earnings, which were down 45% for the six months ended December 31, 2013 vs 2012, although operating earnings were up 10 percent for 2013 vs 2012 six months.

For the December '13 six months revenue was up 3% compared to 2012.  Comparing the 12 months ended June '13 vs June '12, revenue was flat.

The rating on PAHC is neutral.

Business

AHC is one of the leading animal health companies in the world and is dedicated to helping meet the growing demand for animal protein.

PAHC is a global diversified animal health and mineral nutrition company.

History & reach

For nearly 40 years PAHC has been committed providing livestock producers with value-based products and solutions to help them maintain and enhance the health and productivity of their animals.

PAHC sells more than 1,100 product presentations in over 65 countries to 2,850 customers. PAHC develops, manufactures and markets products for a broad range of food animals including poultry, swine, beef and dairy cattle and aquaculture.

As an example of its portfolio depth, PAHC believes over 5.4 billion of the 8.5 billion broiler chickens produced in the United States in 2012 received at least one of its products.

Benefits

PAHC’s products help prevent, control and treat diseases, enhance nutrition to help improve health and performance and contribute to balanced mineral nutrition.

Focus

PAHC believes it is the only global company with an animal health business that concentrates exclusively on animals for human consumption and are one of the few global companies offering a comprehensive range of animal health and mineral nutrition products.

PAHC believes its key products such as Stafac?®, Nicarb?®, and OmniGen enjoy strong brand name recognition and customer loyalty in the markets it serves.

PAHC believes its vaccines are recognized as a standard in efficacy against highly virulent disease challenges and its patented TAbic?® vaccine delivery technology provides superior convenience and logistical benefits over conventional glass bottles.

The foundation of PAHC’s product portfolio is based on several key proprietary molecules and formulations that are supported by additional complementary products, which help address important customer needs.

Dividend Policy

PAHC intends to pay regular quarterly dividends to holders of its Class A common stock out of assets legally available for this purpose.

While any future determination as to whether to pay dividends will be at the discretion of its Board of Directors, PAHC currently anticipate distributing an aggregate of $15 million per year to holders of its Class A and Class B common stock, to be paid quarterly, beginning in its fiscal year 2015.

Intellectual Property

PAHC has 89 patents or pending applications in 45 countries but it believes that no single patent or trademark is of material importance to its business and, accordingly, that the expiration or termination thereof would not materially affect its business.

Competition

PAHC believes many of its competitors are conducting R&D activities in areas served by its products and in areas in which PAHC is developing products.

PAHC’s competitors include the animal health businesses of large pharmaceutical companies and specialty animal health businesses.

In addition to competition from established participants, there could be new entrants to the animal health medicines and vaccines industry in the future.

5% stockholders

BFI?   67.2%

Mayflower? 28.2%

Jack C. Bendheim?  67.2%

Use of proceeds

PAHC expects to net $115 million from its IPO. Proceeds are allocated as follows:

to repay certain of its outstanding indebtedness, to pay related fees and expenses and for general corporate purposes. Concurrently with and conditioned upon this offering, PAHC expects to enter into $390 million in New Credit Facilities.

The 2014 Revolving Credit Facility is expected to have an interest rate of 2.75% plus LIBOR. The 2014 Senior Secured Term Loan Facility is expected to have an interest rate of 3.00% plus LIBOR, with a LIBOR floor of 1.00%.

A portion of the proceeds from the New Credit Facilities, together with the net proceeds of this offering, will be used to repay in full PAHC’s  9.25% senior notes due July 1, 2018, the amounts currently outstanding under the term loan payable to Mayflower, the term loan payable to BFI and the Domestic Senior Credit Facility and pay fees and expenses.