Global life sciences company Sigma-Aldrich (SIAL) has entered into a new revolving credit facility worth $600 million with a syndicate of nine banks. The facility will mature on May 10, 2017, and replaces the existing facility of $450 million which was set to expire on December 11, 2012.
The company has set up this new facility with an objective of providing back-up liquidity for its commercial paper program and also for general corporate purposes.
Sigma-Aldrich’s cash position declined in the first quarter of 2012. The company’s capital expenditures jumped 78% year over year to $32 million in the quarter. The increase in capital spending led to a 16% decline in free cash flows.
Moreover, Sigma-Aldrich’s cash and cash equivalents declined around 10% to $558 million in the first quarter as the company spent on acquisitions, dividend payouts and share repurchases. Hence, the new credit facility will provide Sigma-Aldrich with more breathing space and consolidate its liquidity position.
Going forward, the company intends to expand its business in an aggressive manner. It has already made noteworthy investments in sales, marketing and R&D programs and is focused on ramping up these areas further. Sigma-Aldrich is pushing hard into emerging regions, especially China and India. It recently opened a new 57,000-square-foot facility in Bangalore, India.
Sigma-Aldrich anticipates that emerging markets will contribute more than 30% to its revenues over the next 4-5 years. As a result, it will need cash to expand its global footprint by building infrastructure and upgrading its sales force and R&D department. Moreover, the refreshed credit facility will also help the company to pursue inorganic growth opportunities.
Sigma-Aldrich’s costs might be spiking but the company is focusing on delivering growth in the long-term. The $600 million credit facility should stand it in good stead as it looks to implement its growth initiatives and increase shareholder value.
We currently have a long-term Neutral recommendation on Sigma-Aldrich, which is in agreement with a short-term Zacks #3 Rank (Hold).
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