Abbott to pay $3.7 billion for unit of India's Piramal

MUMBAI Fri May 21, 2010 8:36am EDT

Related Topics

MUMBAI (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 as sales stall in Western markets.

"Piramal has got good money for the business," said Sarabjit Kour Nangra, an analyst with Angel Broking in Mumbai. "Now their growth will depend on how they scale up the residual business."

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.

"A big cash cow will be out," Nangra said.

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.

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, further pharmaceutical 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.

GlaxoSmithKline has frequently been rumored 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. Disagreements over valuation have prevented more deals from getting done.

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

CANNY BUYER

The deal underscores Abbott's reputation as a determined but canny buyer of smaller rivals. In September it snatched the drugs unit of Belgium's Solvay for 4.5 billion euros ($5.63 billion) -- a price that disappointed Solvay investors who had been looking for more.

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 earnings outlook for 2010.

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 and Ben Hirschler in London; Editing by Tony Munroe, Anshuman Daga and Jon Loades-Carter)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
If ANY industry in the United States NEEDS regulation, it is the pharmaceutical DRUG industry. We have allowed them to buy full control of their industry from Washington and they have parlayed that investment into the largest, most destructive threat to America’s health ever devised. They pass laws forbidding research of the only true cures which are natural substances. They are allowed to purposely withhold studies which have shown extremely promising results using natural cures such as the use of vitamin therapies to cure diseases. Many of these diseases were in many cases caused by vitamin deficiencies in the first place. They sell their DRUGS with no price restrictions and are allowed to FORCE THEM ON US BY LAW as the ONLY form of legal “medication”. This is exactly why we have such a huge problem with health in America today. Drug companies are allowed to freely advertise their DRUGS on radio and television, poisoning our subconscious minds to desire their toxic DRUGS. And as long as there are politicians who continue to accept compensation from the DRUC companies and even enact LAWS protecting and supporting the DRUG industry things will only continue to get worse. We seem to think that “pharmaceuticals” are not DRUGS for some strange reason. DRUGS ARE DRUGS – AND ALL DRUGS ARE DANGEROUS. We have no trouble banning a harmless drug like marijuana, but we FORCE, BY WRITTEN LAW THE USE OF DRUGS FAR MORE HARMFUL TO OUR HEALTH, loudly propagandizing them to be the latest “cure”.

May 21, 2010 1:47pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.