UPDATE 4-Abbott to pay $3.7 bln for unit of India's Piramal

* Deal to buy Piramal's healthcare solutions business

* Abbott to make up-front payment of $2.12 billion

* Deal also includes annl.payments of $400 mln for 4 years

* Piramal shares drop 11.8 pct; Abbott rises 1 pct

(Adds analyst comment, moves into emerging markets)

By Sumeet Chatterjee and Bharghavi Nagaraju

MUMBAI, May 21 (Reuters) - Abbott Laboratories Inc (ABT.N) will pay $3.72 billion to acquire the branded generics business of India's Piramal Healthcare (PIRA.BO), as global drugmakers look to boost their presence in emerging markets.

Takeover speculation had swirled around Piramal, with media reports citing Sanofi-Aventis (SASY.PA), Pfizer Inc (PFE.N), and GlaxoSmithKline (GSK.L) as possible buyers.

Abbott said it will pay $2.12 billion up-front and make annual payments of $400 million for four years from 2011 for Piramal's healthcare solutions business. U.S.-based Abbott said it will have the largest market share in India, at 7 percent.

Global demand for drugs from Indian manufacturers such as Ranbaxy Laboratories (RANB.BO) and Dr Reddy's Laboratories (REDY.BO), the top two players by sales, and Cipla (CIPL.BO), is booming as governments battle rising healthcare costs.

Emerging markets, where cheaper generic medicines form the bedrock of sales, are the new battleground for the world's top drugmakers, including Pfizer, Sanofi and Glaxo.

They are making bigger pushes into India, China, Brazil and other countries with fast-growing economies as sales stall in mature Western markets due to patent expirations on big drugs and difficulty coming up with new blockbusters.

"Abbott is rapidly establishing a leadership position in branded generics and emerging markets," Wells Fargo analyst Larry Biegelsen said in a research note.

Biegelsen said the Piramal acquisition builds upon Abbott's emerging markets strategy following its decision in September to pay $6.6 billion for the pharmaceuticals business of Solvay SA (SOLB.BR) and its plans to create a new unit to focus on branded generics.

Moreover, Biegelsen noted that Abbott announced earlier this month it will license at least 24 products from India's Zydus Cadila to sell in emerging markets.

Shares in Mumbai-based Piramal closed 11.8 percent lower on investor disappointment after market speculation that the entire firm would be bought out at a premium and worries that the company is selling off its core business.

Shares in Abbott India (ABOT.BO), the U.S. firm's locally listed unit, gained as much as 14.4 percent before closing 3.7 percent higher. Abbott shares rose 1 percent in New York.

FOREIGN BUYERS/INDIAN SELLERS

The deal is the third-largest inbound acquisition in any sector in India, just behind Japanese drugmaker Daiichi Sankyo's (4568.T) $4.2 billion takeover of Ranbaxy in 2008 .

Since then, other drug deals have been expected, as global majors search for growth and low-cost production of generics, as patents on major branded drugs are set to expire.

Glaxo has frequently been rumoured to be eyeing Dr Reddy's, while Cipla is cited by analysts as a takeover target.

Expensive legal battles with patent holders, higher regulatory scrutiny after charges of poor manufacturing quality, and increased competition in the generics space have compelled Indian pharmaceuticals firms to look for buyers.

Abbott forecast sales in India of more than $2.5 billion by 2020. It is paying roughly 8.7 times annual sales for the Piramal unit. By comparison, Cipla trades at 4.5 times sales.

CANNY BUYER

Industry forecaster IMS Health predicts leading emerging markets will show annual pharmaceuticals sales growth of 14 to 17 percent through 2014, against just 3 to 6 percent a year for developed markets.

Daiichi Sankyo's Ranbaxy deal demonstrates the possibilities but also the potential pitfalls that global players face when linking-up with Indian rivals.

The U.S. Food and Drug Administration said in February 2009 Ranbaxy sold misbranded or adulterated drugs in the United States, its largest market, having earlier banned imports of over 30 generic drugs from the firm.

SPECIAL DIVIDEND?

Mumbai-based Piramal said it would consider paying a special dividend and would use deal proceeds to invest in its remaining businesses and pay down debt.

Abbott plans to fund the deal with cash on its balance sheet and said it would not change its 2010 profit forecast.

Piramal's healthcare solutions accounted for about 55 percent of its revenue at the end of 2009. Its other businesses include third-party manufacturing and pathology laboratories.

"We are not exiting this business. There is huge potential in the domestic market, but there are lots of other opportunities as well," Chairman Ajay Piramal, whose family and associates control 49 percent of the company, according to stock exchange data, told reporters.

Abbott said it was advised by Morgan Stanley, while Piramal said it did not have a financial advisor on the deal. ($1=.7997 Euro) (Additional reporting by Brenton Cordeiro in Bangalore, Kaustubh Kulkarni in Mumbai, Ben Hirschler in London and Ransdell Pierson in New York; editing by Tony Munroe, Anshuman Daga and Jon Loades-Carter)