Medeva promises brake on big acquisitions: Chairman's letter tries to limit damage

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The Independent Online
MEDEVA, the pharmaceuticals group, yesterday tried to limit the damage to its image from Monday's profits warning with a pledge to slow down its hectic acquisition spree.

In a letter to shareholders, Bernard Taylor, chairman, said there would be no 'major' acquisitions until investor confidence had been restored. The profits warning wiped pounds 270m from Medeva's market worth. The shares rose 1.5p to 112p yesterday, valuing it at pounds 305m.

Ian Gowrie-Smith, the chief executive who masterminded its growth strategy, saw the value of his personal stake slump by about half to pounds 3.3m.

'The scale of the fall in the company's share price would appear to reflect wider concerns than could be accounted for by the revised profits outlook alone,' the letter said. 'The board wishes to recognise these concerns and understands that Medeva now faces new challenges and constraints.'

The company said its overriding priority was to rebuild confidence, which would require a halt on big acquisitions, although small-scale 'tactical' purchases would continue.

'Medeva's growth strategy has been based on a close combination of acquisitions and organic growth. The board believes that shareholders will be looking for renewed evidence of the success of this strategy before any further major acquisitions are contemplated,' the letter added.

Since its flotation five years ago, the company has grown rapidly with an estimated pounds 400m acquisition programme involving eight big companies, largely in Britain and the US.

The warning said that this year's pre-tax profits would be pounds 10m lower than City estimates.

The problems were blamed on over-selling of drugs by IMS, a US subsidiary, which led to a sharp jump in unsold stocks at wholesalers.

Another US subsidiary had run into serious difficulties in meeting US compliance standards. The problems forced a two-week plant shutdown.

Analysts expect the company to make taxable profits of about pounds 40m this year against pounds 36m in 1992.