New Delhi, Mumbai, Hyderabad: India’s second-biggest drug maker Dr Reddy’s Laboratories has been the first to blink in the high-decibel buyout race for Merck KGaA’s non-patented pharmaceuticals business. It has pulled out of the running for the asset even as two other Indian suitors, Ranbaxy Laboratories and Cipla remain in the fray.
Announcing his company’s intention not to bid for the German pharmaceutical company’s unit, Dr Reddy’s chief executive G.V. Prasad said: “It is a very large transaction. After an overall study of the opportunity, we felt this is not the right time for Dr Reddy’s to venture into such a big-sized deal.” Monday was the first day set for preliminary bids for the Merck asset, which its parent declined comment on.
The non-patented or generics unit of Darmstadt, Germany-based Merck, for which the preliminary bids were put in on 12 March, is valued at up to $6 billion (Rs26,520 crore). With revenues of $2.3 billion in 2006, a presence in 90 countries, and large operations in the US, Canada, France, Brazil, Belgium, Germany, the Netherlands, Spain, Australia and the UK, the target is the fourth-largest generics player.
A Ranbaxy spokesman said his company will be submitting its bid while Cipla’s CEO Amar Lulla confirmed that its private equity backers will be making an offer.
“We are in the running and our consortium partners are submitting the offer for Merck Generics business soon,” he said. Cipla is a technical member of a consortium led by buyout firms KKR and Warburg Pincus.
Malvinder Mohan Singh, Ranbaxy’s managing director, said: “We are not in a rat race for acquisitions but are focused on creating value for our shareholders in the best way we can.”
Reacting to Dr Reddy’s withdrawal, a sector analyst commented that the company was consolidating its operations after Betapharm acquisition. At $570 million, it is the biggest-ever takeover. “The challenge in managing Merck’s generics unit shortly after Betapharm acquisition and the size of the deal would have left no options for DRL (but to pull out),” the analyst said, requesting anonymity.
Prasad, in an earlier interview with Mint, had conceded that with the German government mandating two rounds of price cuts in generics drugs, Betapharm had taken a 10-15% hit on its bottom line.
Investment banking sources, who didn’t want to be quoted, said both Ranbaxy and Dr Reddy’s differed on terms of financing with their private equity partners.
International suitors for Merck, meanwhile, are firming up their plans. Iceland-based Actavis has hired JP Morgan, UBS and Deutsche Bank as advisors and bankers to the bid.