Former PMI manager claims the business is worth much more than the NPA has offered to pay for it
Members of the Pharmacy Mutual Insurance Company are being asked to approve the sale of its renewal rights for less than their true value, according to former National Pharmacy Association insurance director Glenn
Hirchfield. Mr Hirchfield was one of the three people who blocked the approval of the sale on 7 November 2007.
“In my opinion it’s undervalued,” Mr Hirchfield said. “The
only way to establish whether my opinion is accurate is to take it to
the market and test it.”
Niche insurance businesses have changed hands recently at between 10
and 20 times their profit/earnings ratio, he says, which would make the
PMI worth nearer £20m, rather than the £6.4m being offered
by the National Pharmacy Association.
It is Mr Hirchfield’s view that PMI members should ignore the total
amount they would receive under the proposed sale. A large proportion
of that is the company’s reserves, which could be handed back to
the members at any time without the need to sell the renewal rights.
This has happened on a number of occasions in the past.
Asked whether the value of the PMI was tested on the open market, PMI
chief executive Michael Lamb said: “The independent directors,
in agreeing the purchase price for the renewal rights, had the benefit
of a valuation report by Mazars. The basis used to value the renewal
rights is one well recognised in the insurance market, which in general
terms involves working out the net present value of the renewal rights
using various assumptions as to [the] rate of renewals for the various
products sold by PMI and doing something similar for the value of new
business, ie, growth.”
He said that the final price was negotiated between the PMI and the NPA
and that the independent directors considered £6.4m to be fair
and reasonable.
Asked why the company had not been taken to the market, Mr Lamb said
that the PMI board had not actively decided to sell the renewal rights. “The
approach was made by the NPA and the board felt it had a duty to ensure
this was seriously considered. The independent directors were of the
view there were significant advantages in selling to the NPA, particularly
the reduced need to give warranties and the relative ease of the transfer
of the renewal rights themselves, given the NPA’s familiarity with
the business.”
He added that the cost and effort of preparing the PMI business, or part
of it, for sale to a third party would be disproportionate to any increased
purchase price.
The decision to sell the PMI’s renewal rights was made by a committee
of the four independent directors before being ratified by the full board,
which includes a further five directors who are also directors of the
NPA.
PMI members are to vote on the proposed sale on 18 December 2007. Proxies
can be withdrawn any time before then.
|
The
Pharmaceutical Journal
Acrobat
Reader