CBA 0.22% $84.64 commonwealth bank of australia.

cba and pan pharmaceuticals relationship

  1. 5,316 Posts.
    CBA's sinking feeling
    Author: Adam Shand
    Date: 01/05/2003
    Words: 483
    Publication: The Australian Financial Review
    Section: Companies
    Page: 11
    Source: AFR

    The Commonwealth Bank acted as broker and lender to the ill-fated Pan Pharmaceuticals, enabling interests associated with its founder, Jim Selim, to realise up to $40 million in cash from its $55 million public float.

    According to its prospectus, Pan Pharmaceuticals repaid $40 million in debts to the CBA from its float in August 2000. CBA had earlier lent these funds to Pan to pay the founding shareholders their vendor consideration before the float in August 2000. It is understood that about $10 million of this payment was in settlement of loans the private shareholders and their companies had made to Pan.

    Pan had also paid its founders $79 million in scrip as part of a reconstruction of the group in March 2000 in preparation for the float. Mr Selim emerged with 52 per cent of the company after the float

    The public issue, which was then underwritten by the bank's broking arm, Commonwealth Securities, allowed Pan to repay its bank debt to CBA, which earned the bank interest of 6.41 per cent.

    A spokesman for CommSec said the firm had won the underwriting, which carried fees of about $2 million, "because of a long-standing banking relationship with the Pan Group". It was the first time that CommSec had acted as lead underwriter to a listing.

    Pan sold a third of its capital to the public for $55 million in August 2000, valuing the contract manufacturer at $165 million. The issue was pitched at 10.5 times its 2001 earnings, forecasts that were never met.

    Before the public listing, Mr Selim's companies had battled the Therapeutic Goods Administration and the civil courts over earlier product substitution allegations.

    In 1996, Mr Selim's company was fined $280,000 over TGA action against unauthorised evening primrose oil capsules from Thailand that were placed in bottles cleared for Australian sale. Pan appealed and the decision was overturned.

    The shares reached a high of $2.49 in November 2001 before Pan failed to meet its prospectus forecasts on profits and margins and the stock was sold down to $1.50 before the latest crisis emerged.

    The move by the TGA to suspend Pan's manufacturing licence for six months this week has effectively destroyed the value of equity in the company. Its shares are due to trade at 5¢, if they resume at all.

    Many of the investors who took up the offer were CommSec's clients who are facing the complete destruction of their equity.

    CBA was listed as a substantial shareholder in Pan's 2002 annual report through its funds management arm.

    A CBA spokesman declined to comment yesterday.

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