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Monday, Apr 14, 2008
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Business Daily from THE HINDU group of publications Monday, Apr 14, 2008 ePaper | Mobile/PDA Version |
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Pharmaceuticals Corporate - Mergers & Acquisitions Web Extras - Outlook Consolidation at pharma industry's door-step, but promoters not in a hurry P.T. Jyothi Datta Mumbai, April 13 When Bangalore-based Strides Arcolabs was to merge with Matrix Laboratories, both first-generation companies believed it was worth it, reminisces Strides Executive Director, Mr K.R. Ravishankar, though the deal did not go through. Close to three years since, is consolidation round the corner yet again for domestic pharmaceutical companies? Promoters like Mr Ravishankar say that consolidation in the domestic pharmaceutical industry is still a few years away. But in the week that has seen the Ranbaxy group company, Solrex, increase its equity in Chennai-based Orchid Chemicals and Pharmaceuticals to over 12 per cent, other pharma representatives believe that the industry is indeed set for consolidation. Entrepreneur-driven companies have invested resources in growing their business, expanding overseas and beefing up domestic capacities to meet regulatory standards. And the process of growing the business may have led to some promoters having small equity holdings in their companies, making them vulnerable in a market poised for consolidation, they observe. Orchid's promoters, for example, hold 17 per cent equity in the company. All it takes is one successful deal to trigger more, the industry official said. In fact, the market has seen acquisition-related speculation regarding Teva and Cipla, Reliance and Cipla and more recently, Piramal Healthcare and Strides - all denied by promoters of the target companies. In target line It is not just promoters with small stakes who are vulnerable, says Mr D.G. Shah of the Indian Pharmaceutical Alliance. Any promoter with less than a majority holding in the company could be target for predatory activity, he observes. But Strides' Ravishankar defends that domestic drug companies are entrepreneur-driven and few want to give it up and move on. Promoters believe their companies hold more value than an outsider sees in them. "Historically, promoters have sought to raise money at different periods of time, as growth was more important than control," he told Business Line, referring to the low holdings that several promoters have in their companies. Strides promoters hold 21 per cent equity in the company. According to the latest stock-exchange filings, other companies with low promoter holdings include: Dr Reddy's Laboratories, where promoters hold 25.14 per cent; Shasun, where promoters hold 43 per cent; Ranbaxy, where they hold 35 per cent and Unichem where promoters hold about 48 per cent. Consolidation Consolidation is critical to business, observes Mr Akil Hirani, Managing Partner with international law firm Majmudar and Company. As international pharmaceutical companies increase their activity in India and bring in significant resources, domestic companies will have to move up the product value chain, he observes. Low promoter-holdings do make companies vulnerable to takeovers, but there are poison pills or defences that companies could put in place, he adds. Family-owned businesses have been slow in adapting to changing times and have not considered selling out or getting a private equity player because they did not want an outsider to get to the family's crown jewel, he observes. Strides' Ravishankar admits that companies with low promoter stakes may be "theoretically" vulnerable. But on a personal note, he indicates, it is not something he will lose sleep over.
Pfizer deal lends revenue visibility to Hikal Orchid silent on Ranbaxy interest, but scrip active Shasun’s deal may prove positive in the long term More Stories on : Pharmaceuticals | Mergers & Acquisitions | Outlook
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