OpinionPharmaceutical Packaging Company

Schott Pharma with half-hearted IPO

Schott Pharma is only half-heartedly opening up to the capital market – with an IPO, the proceeds of which will go to the parent company, and in the legal form of a KGaA.

Schott Pharma with half-hearted IPO

Schott Pharma has announced its intention to float in a fragile market environment. Nobody knows for certain whether the central banks' interest rate hikes have really reached their zenith – or whether further increases to curb inflation and a resulting economic slowdown will soon push down stock prices. The IPO will certainly not be a no-brainer. It is only the third IPO in Germany this year. The debut of United Internet's webhosting subsidiary Ionos in February turned out to be a stock market flop, and the average performance of all twelve previous IPOs in Europe this year stands at minus 3%.

Schott Pharma has dazzling business figures to counter this. The pharmaceutical packaging company is the "jewel in the crown" of Schott AG. With its glass syringes, the Mainz-based company is benefiting from a special boom due to new anti-obesity drugs, which are administered by prefillable syringes. The EBITDA margin for the first nine months of the fiscal year stands at a generous 28%. Further growth of this market is foreseeable. This should convince many skeptical investors to invest in Schott Pharma shares.

Schott is merely cashing in

It is all the more regrettable how half-heartedly Schott AG is opening up its subsidiary to the capital market. Typically, an IPO is also meant to provide a company with more flexible financing options for growth. Usually, this opportunity is taken advantage of at the same time as the IPO with a capital increase. However, Schott is merely cashing in. Only existing shares are being offered, and the proceeds from the issuance will solely go into the owner's pocket. The company will receive nothing and is expected to finance its planned growth from its own cash flow.

A similar situation exists regarding the legal structure of Schott Pharma. It is structured as a KGaA – a partnership limited by shares. This is no longer a total exception in the landscape of publicly traded companies. At times, four companies of this legal form were in the DAX index: Fresenius, Fresenius Medical Care, Merck, and Henkel. The sole personally liable partner of the KGaA can also be a capital corporation, which then indirectly manages the KGaA. However, the KGaA significantly restricts the rights of external shareholders while granting the previous sole owner significant influence and to secure this influence permanently even if he no longer holds the majority. This may not sit well with some potential investors.