Paras bidders get an extra week

Shortlisted bidders of the 70 per cent stake in Ahmedabad-based Paras Pharmaceuticals have got another week to place their final offers.

Among these are UK-based Reckitt Benckiser, Japan’s Taisho Pharmaceuticals, Merck, Bayer, Colgate-Palmolive, Johnson & Johnson, and home-grown Emami Ltd, say persons familiar with the development.

The bids placed so far are in the region of $700 million or Rs 3,000 crore, way below the $1 billion or Rs 4,500 crore expected earlier.

Despite this, interest in the Rs 500-crore Paras Pharma auction process, now in the final stages, is being keenly watched. Beside the number of companies which expressed interest, it was also the valuations that Paras attracted, which caught the attention of all.

When Morgan Stanley was appointed investment banker with a “sell mandate” two months earlier, both Actis and Sequoia, the private equity (PE) companies seeking an exit, were looking to do so for a consideration of over Rs 3,200 crore. This valued the firm at about Rs 4,500 crore, which observers said was steep.

The reason attributed to the steep valuation was the lack of credible buys in the domestic fast moving consumer goods (FMCG) segment. That has been the case with most FMCG companies, wrapping up international acquisitions more than domestic buys in recent years.

Harsh Agarwal, director, Emami Ltd, attributes the trend to the easy availability of targets internationally and of valuations not being stretched there. Seconded by Sunil Duggal, chief executive officer, Dabur. “Targets are easily available abroad, especially in the personal care space,” he says.

Growth-hungry domestic FMCG companies are also using international acquisitions as a geographical hedge against their Indian operations, given the interest that multinationals are showing in emerging markets such as India. “Competition here is intensifying,” says Duggal. “Markets such as Africa present a compelling opportunity for growth. Already, 25 per cent of our revenues come from international operations. This trend will only grow.”

Nonetheless, companies here have no desire to miss the bus when an opportunity to buy a local firm presents itself. Quite a few FMCG companies were the first to express interest in acquiring Paras when news about the stake sale by the two PE investors became public in September.

Godrej Consumer, Marico, Dabur and Emami all stepped forward, followed by healthcare majors such as Sanofi Aventis, Nicholas Piramal and GlaxoSmithKline. The search will soon draw to an end.