Ranbaxy Labs to set up SPV for Merck Generics bid

Ranbaxy Laboratories is considering using the frequently-employed technique of taking the special purpose vehicle (SPV) route for launching a bid on Merck’s generic business. If Ranbaxy decides to take the SPV route, the debt and private equity funds as well as Ranbaxy’s own funds will be infused into the SPV.

Merck is looking to sell its generics division, in a deal that could be valued at $5.2 bn. The generics business clocks revenues of around $2.5 bn and if Ranbaxy is able to acquire it, the Indian company’s revenues could nearly triple to around $3.8 bn (See Related Post). The bidding process and due diligence are expected to begin in February. Leading generic companies such as Teva and Sandoz and private equity majors such as Blackstone and KKR could be in the race as well. Ranbaxy has in the past secured shareholders approval to raise $1.5 bn out of which it has already raised $440 mn through FCCBs. Ranbaxy has also taken a 14.9% stake in Hyderabad-based Krebs Biochemicals and Industries for around Rs. 9 crores (See Related Post).

Read the article in The Economic Times.

Hyderabad-based API maker Krebs Biochemicals divests 14.9% stake to Ranbaxy

Ranbaxy Laboratories is buying a 14.9% stake in Krebs Biochemicals & Industries in a deal worth Rs. 9 crores. The acquisition falls just short of the trigger point of 15%, which calls for a mandatory open offer for a listed company in India. The promoter of Dr. Reddy’s Laboratories, Anji Reddy, also holds a 5.1% stake in Krebs in his personal capacity.

Krebs is a small Hyderabad-based publicly listed company promoted by its MD RT Ravi, engaged in the business of manufacturing active pharmaceutical ingredients (API). The company has a market capitalization of about Rs. 57 crores. It posted sales of about Rs. 40 crores for the first nine months of FY 2007. Last year Ranbaxy had expanded its in-house API manufacturing capacities by acquiring the Gwalior-based Cardinal Drugs. Ranbaxy has two manufacturing units for APIs in India, at Mohali and Toansa in Punjab.

Ranbaxy would pick up the equity through a preferential allotment at Rs. 85 per share. Krebs’ board had approved the allotment in its meeting held on January 15, 2007. The Krebs scrip moved up 4.98% to close at Rs 99.05 on Wednesday at the BSE. The stock has shot up 26.42% over the past week.

An immediate takeover of Krebs by Ranbaxy appears unlikely. Krebs’ board has also approved the issue of 20 lakh warrants to the promoter group and selected investors to be converted into equity at Rs 74.3 per share within 18 months from the date of allotment. If all the warrants are issued to the promoters, their stake would go up from 45% as of September 30, 2006. And upon conversion of these warrants Ranbaxy’s stake in Krebs would come down to about 11.6%.

Read the article in The Economic Times.