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Abbott snaps up Piramal's formulations biz for $3.7 bn

BS Reporter  |  Mumbai 

Ajay Piramal

Second-largest deal in Indian pharma space to make the US firm largest player.

Ajay Piramal, the Indian pharma industry’s original takeover artist, today took on a new role. His flagship company, Piramal Healthcare, announced that it had sold its domestic formulations business to US-based multinational drug major Abbott, in a deal worth $3.72 billion (Rs 17,300 crore).

Piramal Healthcare will receive a down payment of $2.12 billion (Rs 10,000 crore) after closing of the transaction by the second half of 2010, and $400 million (Rs 1,850 crore) each for the next four years. The transaction is expected to close in the second half of this year.
 

DEAL DETAILS: THE ACQUIRER GETS ACQUIRED
WHAT IS PIRAMAL SELLING?
  • Domestic formulations business
  • 350 brands with a Rs 2,000-crore turnover
  •   5,500 employees
  • Manufacturing units in Baddi (HP)

WHAT STILL REMAINS?

  • Assets with a turnover of Rs 1,700 crore
  • 11 manufacturing units in four countries
  • Contract manufacturing business
  • Critical care business
  • Bulk drug supply business 
  • Vitamins 
  • Fine chemicals
  • Diagnostics and drug discovery 

OTHER BUSINESS INTERESTS OF AJAY PIRAMAL

  • Glass
  • Private equity
  • Real estate

The deal is the second largest in the Indian pharma space after Daiichi Sankyo’s $5.4 billion (Rs 25,000 crore) acquisition of Ranbaxy in 2008, and will make Abbott the largest player in the Rs 60,000-crore domestic market, with a share of over 7 per cent. In the process, Abbott will overtake Ranbaxy and Cipla, the market leaders for over a decade now.

The Rs 2,000-crore domestic formulations business accounted for more than half of Piramal healthcare’s total full-year revenue. Revenue will rise about 20 per cent annually, reaching more than $2.5 billion (Rs 11,500 crore) by 2020, Abbott said.

Piramal, who is the chairman of Piramal Healthcare, said “the valuation of about nine times shows the value we could create in the domestic market in the last 22 years”.

On his company’s transition from an acquirer to acquired, Piramal said: “I don’t think we were in a position to take the company global. Abbott has the strength and aspirations to do that.” Adding: “There aren’t too many markets growing at 25 per cent annually and it’s a good opportunity” for Abbott to be in India, he said.

Piramal Healthcare, after paying about 22 per cent of the transaction amount (Rs 3,740 crore) as capital gains tax and other statutory payments, will invest the remaining funds in three ways — clear debts worth Rs 1,300 crore, a special dividend to shareholders and investments in the remaining businesses in the healthcare sector and in new and attractive sectors, Piramal told reporters here.

The sale of its main business, however, did not enthuse the shareholders of Piramal Healthcare and its share prices tanked 11.81 per cent on the Bombay Stock Exchange to close at Rs 502.35. Shares of Abbott's India subsidiary, Abbott India, rose 3.71 per cent to reach a 52-week high of Rs 1,210 and closed at Rs 1,069.90.

The Piramal Healthcare stock has been on fire over several months and had risen as much as 5 per cent in a weak market on Wednesday, on market speculation that the company was in talks to sell stake.

Analysts said this was certainly not the last deal in Indian pharma space, given that the country is poised to become one of the biggest pharmaceutical markets in the world.

Piramal Healthcare is one of the top five drug in India, with a string of acquisitions starting with Nicholas Laboratories, an Australian multinational corporation that was exiting India in 1988. Later, the company bought the Indian subsidiaries of Roche, Boehringer Mannheim, Rhone Poulenc, ICI and Hoechst Research Centre to create manufacturing units and one of the largest sales teams among drug Its latest acquisition was the i-pill.

Piramal Healthcare has market-leading brands in multiple therapeutic areas, including antibiotics, respiratory, cardiovascular, pain and neuroscience. Its domestic business had grown 23 per cent in 2009-10.

After the transaction, Piramal Healthcare will retain businesses worth Rs 1,700 crore and 11 manufacturing units in India, UK, Canada and US. The businesses that will remain with it will include custom manufacturing, critical care, active pharmaceutical ingredients, vitamins and fine chemicals, diagnostics (pathology and radiology laboratory chains), diagnostics equipment and drug research through demerged Piramal Life Sciences (PLSL), in which Piramal Healthcare holds 80 per cent stake.

From a common man's point of view, over the counter products like Saridon and Lacto Calamine will continue to be brands of Piramal Healthcare, while popular cough syrup Phensedyl will become part of Abbott.

After the acquisition, over 350 brands and about 5,500 employees and manufacturing units at Baddi in Himachal Pradesh will become part of Abbott's Indian operations.

"This strategic action will advance Abbott into the leading market position in India and our strong position in branded generics and growing presence in emerging markets is part of our ongoing diversified pharmaceutical strategy, complementing our market-leading proprietary pharmaceutical offerings and pipeline in developed markets," Miles D White, chairman and chief executive officer of Abbott, said in a statement.

The deal will make Abbott, operating in India for the last 100 years, mainly selling digestive products like Digene and other antibiotics, the largest domestic player, with close to 400 products in the domestic market. Piramal's Healthcare Solutions business will become part of Abbott's newly created stand-alone Established Products Division. Abbott has more than 2,500 employees across all of its businesses in the country.

Recently, Abbott expanded its reach within emerging markets with the acquisition of Belgium's Solvay Pharmaceuticals and a collaboration with Cadila Healthcare in India for the supply and licensing of generic drugs.

First Published: Sat, May 22 2010. 00:46 IST
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