UPDATE 2-Watson buys Strides' Australia unit for $396 mln

Tue Jan 24, 2012 4:50am EST

* Watson becomes No. 5 generic drugmaker in Australia

* Strides to cut debt by $250 mln in 2012

* Strides shares rally 18 pct to highest in over 2 years

By Kaustubh Kulkarni and Sakthi Prasad

BANGALORE/MUMBAI, Jan 24 (Reuters) - U.S.-based Watson Pharmaceuticals Inc said it bought the Australian and South East Asian generic drugs business of India's Strides Arcolab for A$375 million ($396 million), boosting Strides' shares by more than 18 percent.

Watson said on Tuesday it acquired 94 percent of Ascent Pharmahealth Ltd from Strides and the rest from the Australian company's chief executive, Dennis Bastas.

Watson said the deal made it the fifth largest generic pharmaceutical company in Australia in terms of revenue, as well as the largest generic drugmaker in Singapore.

The U.S. company said it had also gained an established commercial base in Malaysia, Hong Kong, Vietnam and Thailand.

Watson said it expected the transaction, funded by cash-on-hand and borrowings, to immediately add to 2012 non-GAAP earnings.

For Bangalore-based Strides, the sale of will help it cut debt by $250 million and lower its debt-to-equity ratio to 0.6-0.7 from about 1.6, Group Chief Executive Aun Kumar said.

"Post the sale, we will continue to focus on injectables and specialty businesses," Kumar told CNBC-TV18.

Strides raised its stake in Ascent Pharmahealth to 94 percent last April, and had valued the company at A$100 million.

"The sale of Ascent is a forward-looking initiative for Strides," Kumar said in a statement. "We have been clear about our intention to focus on our highly attractive sterile segment, which we expect to be our growth engine going forward."

The sold business constitutes about 30 percent of Strides Arcolab's revenue guidance for financial year ended December.

"It's a superb deal for Strides and will help the company improve its margins," said Siddhant Khandekar, an analyst at ICICI Direct.

The valuation is 2.6 times of the unit's sales and 17 times the EBITDA levels, he said.

Shares of Strides Arcolab, which hit their highest level in more than two years after the announcement of the deal, were up 12.6 percent at 458.85 rupees at 0828 GMT.

U.S. investment bank Jefferies advised Strides on the sale.