Alliance Pharma plc: A Strategic Takeover in the Making?

The recent Form 8.5 filing by Investec Bank plc, acting as an exempt principal trader for Alliance Pharma plc, has reignited speculation about a potential takeover bid. On April 28, 2025, Investec purchased 135,659 ordinary shares of Alliance Pharma at prices ranging from £64.41 to £64.43 per share—a transaction that underscores growing interest in the dermatology-focused pharmaceutical company. This article examines the implications of these dealings, the broader takeover context, and what investors need to consider before taking a position.

The Form 8.5 Filing: A Signal of Things to Come?

The Form 8.5 filing adheres to Rule 8.5 of the UK Takeover Code, which mandates transparency for transactions that may indicate shifts in corporate control. Investec’s role as financial advisor to Aegros Bidco Limited—a vehicle indirectly owned by DBAY Affiliates and the ERES IV Fund—is critical here. The absence of derivatives or voting rights arrangements in the filing suggests the purchases were likely market-making or client-directed, but their timing and scale raise questions about an impending bid.

Alliance Pharma’s total issued ordinary shares stand at approximately 541.5 million (calculated from DBAY’s 27.9% stake of 151 million shares). The purchased 135,659 shares represent a tiny fraction of this total, but their acquisition by a bidder’s advisor could signal preparatory steps for a full offer.

The Takeover Context: A Cash Offer Valued at £349.7 Million

The Form 8.5 activity aligns with a recommended acquisition announced in January 2025, under which Aegros Bidco seeks to acquire Alliance Pharma’s entire issued and to-be-issued ordinary shares (excluding those held by DBAY). The Final Increased Cash Offer values the company at £349.7 million on a fully diluted basis, or 62.5 pence per share. This figure implies a fully diluted share count of 559.5 million, slightly higher than the issued shares, likely due to potential stock options or convertible instruments.

Critically, the cash offer is now final and non-modifiable, except in cases of a third-party rival bid or exceptional regulatory consent. This rigidity suggests the bidders are confident in their terms but also risks alienating shareholders seeking higher valuations.

Key Considerations for Investors

1. Shareholder Approval Risks: The takeover requires 75% in number and 90% in value of votes cast at the Court Meeting. While DBAY already holds nearly 28%, minority shareholders may resist the 62.5 pence offer, especially if Alliance’s prospects justify a higher valuation.
2. Operational Uncertainty: Alliance Pharma’s revenue relies on niche products like Nizoral and KELO-COTE, which face generic competition and regulatory hurdles. The bid’s success hinges on whether the new owners can sustain or grow these brands.
3. Regulatory Scrutiny: The Scheme of Arrangement must satisfy UK competition laws and the Takeover Code. Delays or objections could destabilize the process, particularly if alternative bids emerge.

The Director’s Move: A Vote of Confidence or a Risky Gambit?

Alliance Pharma’s director, Richard McKenzie, plans to acquire 23,000 shares (0.004% of the total) on April 24 to qualify for the Alternative Offer, which allows retention of exposure to the company post-acquisition. However, the directors explicitly disclaim any endorsement of this path, citing risks like market volatility and operational challenges. This underscores the uncertainty surrounding Alliance’s future under private ownership.

Conclusion: A Calculated Gamble with Mixed Signals

The Form 8.5 filing and ongoing takeover process paint a picture of strategic consolidation in the dermatology space. For investors, the key data points are stark:
- Current Valuation: The 62.5 pence offer implies a market cap of £349.7 million, which is 14% below Alliance’s recent share price of £1.46 (as of April 2025). This discount suggests skepticism about the bid’s fairness.
- Shareholder Dynamics: DBAY’s 27.9% stake gives it significant influence, but minority shareholders may demand higher terms.
- Product Pipeline: While Nizoral and KELO-COTE remain profitable, their long-term viability faces headwinds from generics and shifting consumer preferences.

The takeover’s success depends on navigating these risks. If the Scheme is approved, investors in the Alternative Offer could benefit from upside if Alliance outperforms post-privatization. However, the lack of a premium and operational uncertainties make this a high-risk, high-reward scenario. For now, Alliance Pharma’s shareholders are caught in a waiting game—where every share traded, like those in the Form 8.5 filing, carries the weight of a potential new chapter.