Sun Pharma buys Taro for $454 mn

Second largest overseas buy by Indian drug firm.

In its third acquisition of an overseas company, Sun Pharmaceuticals, India's most valuable drug maker, is buying Israel's Taro Pharmaceutical Industries for $454 million (Rs 1,861 crore) in an all-cash deal. The two companies today signed a definitive agreement to this effect.

The acquisition will help Sun Pharmaceuticals raise its share in the $70 billion global generics (off-patent) market from less than 1 per cent now.

With drugs worth $300 billion going off-patent within the next five years, companies like Sun Pharmaceuticals have drawn up plans to grow rapidly through mergers and acquisitions. 

The Big Four M&As
Indian Co	Foreign asset	Country	Amount	Date
Dr Reddy's	Betapharm	Germany	$572 m	Feb 16, '06
Sun Pharma	Taro	Israel	$454 m	May 21, '07
Ranbaxy	Terapia	Romania	$324 m	March 29, '06
Wockhardt	Negma Labs	France	$265 m	May 3, '07

Sun had registered a turnover of Rs 2,132.1 crore in 2006-07. With this acquisition, this could go up by over 50 per cent "" Taro had sales of $298 million and profit of $5.7 million in 2005, the last year for which information is available. The company is expected to end 2006 with a loss.

Taro has production units in Israel, Canada and the US. North America, which represents more than half of the world market for pharmaceutical products, accounts for 90 per cent of Taro's business.

"We intend to build on Taro's expertise in dermatology and paediatrics, along with specialty and generic pharmaceuticals and over-the-counter products. With the addition of 170 talented scientists to our team, we look forward to an increasing number of product filings of higher complexity," Sun Chairman & Managing Director Dilip Shanghvi said.

Though investors usually hammer stocks of companies that announce big-ticket acquisitions, Sun Pharmaceuticals shares went up 5.03 per cent to close the day at Rs 1,064.15 on the Bombay Stock Exchange. The 30-share BSE Sensex rose 0.81 per cent today.

This is the second biggest overseas acquisition by an Indian pharmaceutical company after Dr Reddy's Laboratories' $572 million buyout of Germany's Betapharm.

"The acquisition follows Sun Pharmaceuticals' philosophy of acquiring value assets," said Sanjiv Kaul, managing director, ChrysCapital.

Sun will bankroll the acquisition from internal accruals and proceeds from its recent issue of foreign currency convertible bonds worth $350 million.

Sun Pharmaceuticals has valued Taro's equity at $230 million, or $7.75 per share, which is a 27 per cent premium to its May 18 closing price of $6.10. The company will also refinance Taro's net debt of $224 million.

In addition, to provide immediate liquidity to Taro, the Indian drug maker will provide interim financing of $45 million.

The Taro buyout is Sun Pharmaceuticals' third overseas acquisition. On the whole, the company has 13 acquisitions to its credit, which include manufacturing sites, brands and companies. Taro is its 14th buy.