Torrent Pharma bids $5-6 bn for Merck’s generics business; Ranbaxy pulls out

Two surprising developments have taken place with the Merck deal. Ahmedabad-based Torrent Pharmaceuticals has reportedly emerged as one of the aggressive bidders for German pharma major Merck’s generics business. Torrent has valued Merck Generics at a whopping $5-6 bn. Torrent has made the bid with the help of private equity funds. With this, Torrent joins the league of global pharma giants like Teva, Mylan Laboratories, Novartis and Actavis who are in vying for Merck’s generics business. At the home turf, it is pitted against pharma companies Cipla and Ranbaxy.

Also, it has been learnt that Ranbaxy is pulling out of Merck bid on account of concerns of over-valuation. Ranbaxy was being advised by Goldman Sachs and Citigroup on the deal.

PE firms may not support Ranbaxy’s bid for Merck’s generics business

In a major setback to Ranbaxy Laboratories’ bid attempt for Merck’s generics business unit, private equity firms have stated that they do not want fund Ranbaxy’s offer as the Indian drug maker does not want to give them an equity stake. Ranbaxy may offer equity only in a special purpose vehicle rather than in itself if it wins the bid. First round non-binding offers for the business, which is expected to fetch at least €4 bn ($5.2 bn), are due by Monday. Iceland’s Actavis and Ranbaxy have both said they want to acquire the business.

Meanwhile, the other Indian pharma companies in the race for the Merck bid, Dr. Reddy’s and Cipla, have opted out. Several global majors like Novartis, Teva, Actavis and private equity group Carlyle are said to be interested in the bidding.

Article in Reuters.com and DNA Money.
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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.

Ranbaxy Laboratories to bid for Merck’s generic drug business

Ranbaxy Laboratories, India’s third-largest drug maker by market value, is planning to buy German pharma major Merck’s generic drug business, estimated to be worth more than €4 bn ($5.2 bn). If a deal is struck, Ranbaxy will become the third largest generic drug manufacturer in the world, behind Teva Pharmaceuticals of Israel and Swiss pharma company Novartis, with combined sales of $4 bn. Ranbaxy itself is valued at $3.5 bn, and aims to be one of the top five generic players in the world with $5 bn in annual sales by 2012.

Ranbaxy would likely be competing with other pharma companies such as Teva, Sandoz (Novartis’ generics division) and Sanofi-Aventis as well as private equity majors such as Blackstone and KKR, for acquiring the assets of Merck’s generic business. Ranbaxy hopes to be in the fray by January-end. The company is planning to raise finances for the acquisition through a mix of debt, equity and private equity.

In the year 2006, Ranbaxy laboratories had made six acquisitions – Be-Labs (South Africa), Ethimed NV (Belgium), Terapia (Romania) and the unbranded generic business of GlaxoSmithKline (GSK) in Germany and the Mundogen generic business of GSK in Spain.

Merck’s generics business has gross revenues of around $2.5 bn. The German company had announced last week that it was considering the sale of its generics division (Merck Generics) to raise resources for the acquisition of Swiss drug-maker Serono. Merck Generics has sales in more than 90 countries and accounts for the third largest generics business in the world. The division employs approximately 5,000 people world-wide.

A successful acquisition, besides tripling Ranbaxy’s topline, will give it greater access to key markets in the US, Europe and Japan. Moreover, with the Merck business not being vertically integrated, Ranbaxy can use its strengths in the active pharmaceutical ingredient (API) business to bring about greater cost synergies and efficiencies. It will also result in improved product flow, economies of scale and relative enhanced pricing power for Ranbaxy in the highly competitive generic industry.

Read more on this news from Reuters.com, Business Standard and The Economic Times – 1 2.