Oriola Oyj — M&A Activity 2022

Feb 9, 2022

Oriola’s Kronans Apotek and Apoteksgruppen to merge into a new company – synergy in focus

Oriola’s Kronans Apotek and Apoteksgruppen to merge into a new company – synergy in focus

Oriola Corporation Insider information 9 February 2022 at 9.00 a.m.

Oriola’s Kronans Apotek and Apoteksgruppen to merge into a new company – synergy
in focus

Oriola Corporation (“Oriola”) and the Euroapotheca group (“Euroapotheca”), have
on 9 February 2022 signed a framework merger agreement for combining the
respective pharmacy businesses in Sweden: Oriola’s Consumer business area
comprising Kronans Apotek (“Kronans Apotek” or “Oriola Consumer”) and
Euroapotheca’s Apoteksgruppen into a new company (the “New Company”).

The New Company to be established will have over 470 pharmacies and full online
pharmacy operations, over 2,300 full-time employees and an illustrative combined
revenue of EUR 1,140 million as of 2020 in Sweden. The New Company is expected
to be the third largest player in the Swedish pharmacy market by revenue, with
an estimated combined market share of 25 percent.

Euroapotheca is an international group of companies in the Northern Europe
region managing pharmacy chains, online pharmacies and wholesale companies in
Estonia, Latvia, Lithuania and Sweden. The group employs altogether nearly 4,000
people. Euroapotheca acquired Apoteksgruppen in 2018.

Transaction key facts

· New Company to be established, owned 50/50 percent equally by Oriola and
Euroapotheca.
· In the transaction, Oriola Consumer’s enterprise valuation is approximately
EUR 400 million. Apoteksgruppen is valued at approximately EUR 300 million.
· Oriola Consumer’s net debt and liabilities (IFRS 16 leases and factoring
liabilities) of approximately EUR 134 million to be transferred to the New
Companyat the closing, and Apoteksgruppen to transfer net debt of approximately
EUR 82 million into the New Company.
· Oriola to receive a one-off cash consideration of approximately EUR 24
million from Euroapotheca for reaching the 50/50 percent ownership in the New
Company.
· The transaction is estimated to create annual run-rate synergies of
approximately EUR 25 million on EBITDA level. The synergies are expected to
realise in full by the end of the third year from closing. One-off costs and
investments relating to integration and synergy extraction at the New Company
are estimated to be approximately EUR 25 million.
· The transaction will result in an estimated one-time loss of approximately
EUR 10 million (including transaction costs), which will be recognised in the
consolidated accounts of Oriola in 2022. The amount is subject to change due to
timing of the closing as well as customary closing adjustments. The parent
company will recognise a loss of approximately EUR 100 million as a result of
loan receivables that are not transferred.
· The transaction is subject to competition authorities’ approval and is
expected to close at the latest during the second half of 2022.

Strategic rationale

The transaction is motivated by the opportunity to create significant synergies
and increase the scale and market presence of the New Company.

Oriola has owned 100% of Kronans Apotek since 2012. Kronans Apotek has 322
physical pharmacies in Sweden and in recent years, it has had a strong omni
-channel strategy and focus on growing online operations: Oriola has
strengthened Kronans Apotek’s operations amongst others by investing in and
developing a competitive and scalable e-commerce solution.

The pharmacy market conditions in Sweden have changed during the past years as a
result of consumer buying behaviour shifting more towards online sales. This
digital transformation has been driven by fast growing pharmacy e-commerce and
has been further accelerated by the COVID-19 pandemic. The development has been
to the benefit of pure online players and brought new such players to the
market, while traditional pharmacy chains have also invested heavily into e
-commerce.

In the changing market conditions, Oriola estimates that the contemplated merger
combining Kronans Apotek and Euroapotheca’s Apoteksgruppen will be a value
creating transaction. The transaction is estimated to create annual run-rate
synergies of approximately EUR 25 million on EBITDA level. Main recognised
synergy sources are administration related costs as well as other fixed costs.
The synergies are expected to realise in full by the end of third year from
closing. One-off costs and investments relating to integration and synergy
extraction at the New Company are estimated to be approximately EUR 25 million.

With complementary pharmacy networks of Kronans Apotek and Apoteksgruppen, the
combined entity is expected to have an increased scale and a strengthened market
presence: by revenue, the New Company is expected to be the third largest player
in the Swedish market and to reach an estimated combined market share of
approximately 25 percent. Kronans Apotek’s current market share is approximately
16.3 percent. Economies of scale form a major part of the identified value
creation opportunities together with combining the strategic capabilities of the
companies. For example, the New Company is expected to focus strongly on
expanding the e-commerce as the consumer behaviour is shifting.

“We are delighted to publish the planned merger of Oriola’s Kronans Apotek and
Euroapotheca’s Apoteksgruppen, creating significant synergy opportunities in the
pharmacy business. The contemplated transaction is a logical step in Oriola’s
transformation and consequently Oriola will focus on its societal role as an
infrastructure company of pharmaceuticals distribution and providing services to
pharmaceutical companies and pharmacies. With this common venture, during the
next 2-3 years the new company will concentrate in capturing the synergies,”
comments Panu Routila, Chairman of the Board at Oriola.

“We are happy to announce further development of Apoteksgruppen, a continuation
of our investments started in 2018. Sweden remains a very important market for
Euroapotheca Group, and we have been looking for opportunities how to increase
our presence there. Forming the new company of Apoteksgruppen and Kronans Apotek
will create a well-established No. 3 player in the Swedish pharmacy market and
will also unlock substantial synergy potential, which will enable to remain
competitive in the changing market dynamics characterised by the increasing
shift towards online,” comments Paulius Mencas, Chairman of the Board at
Euroapotheca.

Transaction details

Oriola and Euroapotheca will combine the respective pharmacy businesses in
Sweden into a 50 percent and 50 percent equally owned New Company to be
established. In the arrangement, Oriola contributes its Consumer business area
(Kronans Apotek) into the New Company, for an enterprise value of approximately
EUR 400 million. At the closing of the arrangement, Oriola Consumer’s
liabilities (IFRS 16 leases and factoring liabilities) of approximately EUR 134
million will be transferred to the New Company. Additionally, Oriola will
receive a cash consideration of approximately EUR 24 million from Euroapotheca.
Euroapotheca contributes its Swedish business, Apoteksgruppen, into the New
Company for an enterprise value of approximately EUR 300 million and transfers
net debt of EUR 82 million into the New Company.

The transaction is subject to competition authorities’ approval and is expected
to close at the latest during the second half of 2022.

Illustrative combined financial information of the New Company

The illustrative combined financial information presented below is based on
Oriola’s and Apoteksgruppen’s audited consolidated financial statements for the
financial year ended 31 December 2020. The illustrative combined financial
information is presented for illustrative purposes only and is unaudited.

The illustrative combined financial information presented is based on a
hypothetical situation and should not be viewed as pro forma financial
information as any impacts of the combination have not been taken into account.
The illustrative combined financial information does not reflect any synergy
benefits, cost savings, possible integration costs or other impacts that may be
incurred as a result of the arrangement.

· Net Sales EUR 1,140 million
· EBITDA EUR 59 million
· Adj. EBIT EUR 24 million or 2.1% of Net Sales
· Net Debt EUR 216 million (including net interest-bearing debt post-deal
financing, IFRS 16 leases and factoring)

Implications to Oriola’s financial figures

The transaction is expected to have a negative impact of approximately EUR 10
million on consolidated net profit of Oriola Group including as a result of
realised translation differences and transaction related costs. For the parent
company, there will be a negative impact of approximately EUR 100 million on net
profit as a result of loan receivables that are not transferred to the New
Company, decreasing the parent company’s distributable funds by an equal amount.

As a consequence of transferring EUR 134 million of Oriola Consumer’s
liabilities to the New Company consisting mainly of IFRS 16 related leasing
liabilities as well as factoring, Oriola Group’s net debts will be decreasing.

Oriola will report the New Company as an associated company under the equity
method and present the share of associated company’s result above EBIT in the
consolidated financial statements.

Oriola’s transformation continues

As stated in Oriola’s January‒September 2021 interim report, Oriola has entered
the first phase of its transformation. The company has ongoing initiatives to
ensure its primary role in society efficiently and with high-quality operations
and to improve profitability.

After the closing of the contemplated arrangement, Oriola will focus on
wholesale and distribution of pharmaceuticals as well as expert services to
pharmaceutical companies. Furthermore, Oriola will provide a wide portfolio of
health and wellbeing products, dose dispensing and staffing services for
pharmacies. All services support the distribution of pharmaceuticals.

Simultaneously, Oriola will actively seek to increase the value of the New
Company on the Swedish pharmacy market as an active owner.

“In recent years, Oriola’s performance has not been satisfactory and thus, we
are currently executing the rigorous turnaround measures to improve
profitability and operative efficiencies of Oriola. The announced planned merger
of Kronans Apotek and Apoteksgruppen marks a significant step on this path.
After the transaction closing, Oriola will continue to have an important role in
the society by delivering pharmaceuticals and other health and wellbeing
products to its customers. The company’s focus will also be on adjacent services
to its customers, from pharmaceutical companies to pharmacies,” comments Elisa
Markula, CEO of Oriola.

Oriola is in the process of renewing its business strategy and will present the
new strategy in the Capital Markets Day to be held on 5 May 2022.

Fairness Opinion

The Board of Directors of Oriola has considered several factors in its
assessment to approve the transaction, including, but not limited to, a fairness
opinion (the “Fairness Opinion”), dated 8 February 2022, obtained from Oriola’s
financial advisor, Nordea Bank Abp (“Nordea”). According to the Fairness Opinion
the consideration to be received by Oriola in connection to the proposed
transaction is, as per the date of the opinion and subject to the assumptions,
limitations and qualifications set out therein, fair from a financial point of
view.

Key facts of the entities to be combined

+-----------------------------------+--------------+----------------------+
| |Kronans Apotek|Apoteksgruppen |
+-----------------------------------+--------------+----------------------+
|Revenue (2020), EUR million |781 |359 |
+-----------------------------------+--------------+----------------------+
|Adj. EBIT (2020), EUR million |14.4 |9.8 |
+-----------------------------------+--------------+----------------------+
|Pharmacies |322 |150 (excl. franchise)*|
+-----------------------------------+--------------+----------------------+
|Employees, FTE |1,600 |760 |
+-----------------------------------+--------------+----------------------+
|Estimated market position in Sweden|3rd |4th |
+-----------------------------------+--------------+----------------------+

*) At the end of 2021, 43 pharmacies have been operated under Apoteksgruppen
brand on franchise agreements by independent entrepreneurs.

Advisors

Oriola is being advised by Nordea Bank Abp as the financial advisor, Railo
Partners Ltd as the project execution lead and Hannes Snellman Attorneys Ltd as
the legal advisor. Hill+Knowlton Strategies acts as the communications advisor
to Oriola.

Analyst and investor meeting

Oriola Corporation will organise a live-webcast meeting for investors, analysts
and the press on 9 February at 11.00 a.m. The event can be followed as a live
-webcast accessible through this link: https://oriola.videosync.fi/2022-02
-09 (https://eur01.safelinks.protection.outlook.com/?url=https%3A%2F%2Foriola.vid
eosync.fi%2F2022-02
-09&data=04%7C01%7Cjulia.kristensen%40oriola.com%7C64d3fc6ccbfc4849cfaf08d9eb12f2
95%7Ccfb694d1e04b4bb5a2b59b4f232dce87%7C0%7C0%7C637799289017868814%7CUnknown%7CTW
FpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0&
sdata=JzpNQr0DyYpo0c8VdzdN5%2FSvYghXWjfk%2BEvD3s3xjCI%3D&reserved=0).

Oriola Corporation

Further information:

Panu Routila
Chairman of the Board, Oriola Corporation

Tel. +358 40 588 5343 (Tuula Lehto, Vice President, Communications and
Sustainability)

Email: panu.routila@oriola.com

Elisa Markula
CEO, Oriola Corporation
Tel.+358 10 429 2109
Email:elisa.markula@oriola.com

Paulius Mencas

Chairman of the Board and CEO, Euroapotheca UAB

Email: Paulius.mencas@ev.lt

Laimonas Devyžis

Head of Business Development, Euroapotheca UAB

Email: Laimonas.devyzis@ev.lt

Distribution:
Nasdaq Helsinki Ltd
Key media

Released by:
Oriola Corporation
Corporate Communications
Orionintie 5
FI-02200 Espoo
www.oriola.com