Business Standard / New Delhi May 25, 2010, 00:14 IST
There are two sets of interests who see the same glass as half full and half empty as a result of Piramal Healthcare selling its main business of domestic formulations to pharma major Abbott Laboratories. Piramal Healthcare chairman Ajay Piramal has said that one of the reasons behind the sale is the company not having the potential to grow overseas. On the other hand, Abbott has said that it is paying top rupee for the business, nine times Piramal’s annual revenue, because it sees great value in the emerging Indian market. The branded generics space in India excites Abbott more than the Piramal Healthcare management. The other difference in perception is between the non-promoter shareholders of Piramal Healthcare and the promoters. The promoters are happy over the valuation, a recognition of what they have done over the years, but are not selling out, as is more common when someone wants to exist a business. They have sold the main business and the proceeds will come to the residual business minus a hefty 22 per cent capital gains tax. The non-promoter shareholders, who have no option to exit at a premium (they would have been able to had there been an open offer) a business which is exiting its main business, were obviously not happy despite standing to earn a special dividend. This was reflected in the sharp fall in the Piramal Healthcare share price after the announcement.
There is, however, no difference among most global pharma majors in the way they see the Indian market emerging. Some have got in and many would like to if the price is right. Indian drug prices are still low and there is intense competition in the Indian market. The resultant affordability has created prospects of high growth with rising incomes. Pharma majors who have a lot of complaints about the patents regime in India nevertheless appear willing to pay a high price to get in. Those getting in hardly look like nervous incoming passengers at an airport worried that they might lose their baggage. This puts a big responsibility on the Indian government to allow the regulatory mechanism to largely continue the way it has since the 70’s. Making affordable medicines available has been the primary goal. Prices have been kept low through a combination of price control for essential medicines and a competitive environment. An initial absence of product patents has now been replaced by efforts, partly because of intense campaigning by advocacy groups, to keep in check extension of patents beyond their normal life by hook or by crook. While hanging on to the good from the past, regulators have to do more. A manageable list of essential medicines should continue to be made available at affordable prices by using a number of instruments — well-managed public procurement, compulsory licensing wherever necessary, making public sector capacities functional and resorting to price control if nothing else works. Plus, far greater attention has to be paid to quality across the board than has been done till now.
With reference to the statement that "the non-promoter shareholders, who have no option to exit at a premium (they would have been able to had there been an open offer) a business which is exiting its main business, were obviously not happy despite standing to earn a special dividend", it has not made been clear whether the special dividend would be by way of cash dividend, or stock dividend (bonus shares). However, it may be pointed out that, as the sales procceds is mainly on account of a manufacturing unit (and not trading of goods) and stock dividend is more tax efficient (as dividend tax is not payable thereon), from the angle of non-promoter shareholders, who constitute the majority (around 50.42 %) and the company itself, the latter appears to be more advantageous. As the exchequer is benefited by way of capital gains tax on the main transaction, the question of tax avoidance does not arise.
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