Aurobindo to buy US nutritional supplements maker for $133 million

Acquisition to help company expand its over-the-counter products business in the US

Hyderabad-based Aurobindo Pharma Ltd said on Wednesday it’s US subsidiary Aurobindo Pharma USA Inc had emerged as the highest bidder with $132 million (around Rs 812.5 crore) for the acquisition of nutritional supplement maker Natrol Inc and other affiliates.

Through this acquisition the company aims to diversify its operations beyond the traditional generics business especially into the nutraceuticals targeting the US and other international markets.

The auction process for the acquisition of the assets of Natrol with an agreement to take on certain liabilities was initiated by the United States Bankruptcy Court for the District of Delaware after the company filed for bankruptcy in June this year.

Natrol stated in the bankruptcy petition that it had up to $500 million assets and up to $100 million in liabilities, according to reports. The auction was launched on November 10 with an offer of about $90 million, which was bested by Aurobindo.

In a statement, Aurobindo said Natrol is an excellent strategic fit and provides the right platform for creating a fully-integrated OTC platform in the USA and in other international markets.

“The acquisition of Natrol, along with some incremental investment and the R&D, would help achieve our aspiration of entering the branded nutritional supplements business which offers a good value. The size of the nutraceuticals business in the US is about $35 billion, which is expected to go up to $55 billion by 2020,” N Govindarajan, the managing director of Aurobindo told Business Standard.

Manufacturing of all the products of Natrol was done in the US. Aurobindo would continue with these operations as they tend to be cost competitive, according to him. Natrol is a 30-plus year brand with seven of its products completing 20 years in the US market enjoying a loyal and a stable customer base, he said.

The process of acquisition, which is subject to final approval by the US Court, including other statutory approvals, is expected to be completed by December 15.

On the question of funding the acquisition, Govindarajan said it would be done through debt and internal accruals. “We have enough head room for raising fresh funds as we had already reduced the debt to $400 million from a peak of $600 million.”

On the valuation front, the acquisition was reasonable, according to Angel Broking. “On the funding part, the company can easily fund the same, as the company has comfortable debt equity of 1:1.”

Aurobindo share price on Wednesday rose 3.1 per cent or Rs 31.9 at Rs 1,060 on the BSE over the previous close of Rs 1,028.1.

Based in California, Natrol, a unit of Plethico Pharmaceuticals Limited of India, was acquired for about $82 million in October 2007 by Plethico. Angel Broking says Natrol’s sales should be around $100 million. Given the size of the Aurobindo, the acquired company will form around four to five per cent of its FY16 sales and profitability.

Led by a strong growth in the US generics business, Aurobindo reported a 58.4 per cent jump in net profit at Rs 372.18 crore in the July-September quarter this year. Revenues also witnessed a 50.5 per cent growth at Rs 2,881.22 crore in that quarter.

A Wall Street Journal report says Natrol filed for Chapter 11 Bankruptcy Protection in June, under pressure from Cerberus Business Finance LLC, and eventually agreed to put itself up for sale to pay off its debts. In addition to cash to pay Cerberus, Aurobindo Pharma USA Inc has agreed to take on some of Natrol’s unpaid bills, according to the papers filed on Monday in the US Bankruptcy Court in Wilmington.

According to reports that appeared in June, Natrol has been also the target in the past year of at least three lawsuits seeking class action status. They were filed questioning the claims of the advertised benefits of glucosamine-related supplements produced by the company. Natrol denied the allegations.
ADDING MUSCLE

• Natrol had  filed for bankruptcy in June this year.
• Company stated in the bankruptcy petition it had up to $500 mn assets and up to $100 mn in liabilities.
• Manufacturing of all the products of Natrol was being done in the US and Aurobindo would continue with these operations as they tend to be cost competitive
• The process of acquisition, which is subject to final approval by the US Court, including other statutory approvals, is expected to be completed by December 15