Its Rs1,862 crore acquisition of the Israel-based multinational drug firm Taro Pharmaceutical Industries Ltd isn’t complete but India’s largest drug maker by market capitalization, Sun Pharmaceutical Industries Ltd is readying for more acquisitions in the US.
Uday Baldota, a spokesperson for Sun said the company is on the look out for fresh targets in the US and the money being raised through a planned issue of equity or bonds will be utilized for this.
Baldota added that the company has still not zeroed in on any particular targets in the US. “As a criterion for acquisition, we ideally look at 25% return on capital employed within four to five years. Based on this, we might look at a single or multiple buyouts in the US,” Dilip Shanghvi, chairman and managing director had said in June.
The company plans to create a war chest of Rs3,500 crore by issuing global depositary receipts or debt instruments that convert to equity to foreigninvestors.
Sun had raised about Rs1,600 crore through the issue of convertible bonds in November 2004.
“We haven’t yet decided when to issue the fresh bonds in the foreign market as it is will depend on market conditions. The issue can be launched any time after shareholders’ approval is received (the company has called an extraordinary general meeting of shareholders at Mumbai for this purpose),” said Baldota.
Crisil Ltd, a credit rating agency in India had rated Sun’s issue of short-term commercial paper as the highest possible P1+, which could mean that the company can raise money through debt at an interest rate that is not very high.
“In keeping with its strategy of focusing on specialty segments, the company has undertaken a number of mergers and acquisitions. These have helped broaden its therapeutic coverage to segments such as oncology, gynaecology, ophthalmology, and paediatrics,” Crisil said in its rating rationale.
However it’s possible that Sun may not get a highest safety credit rating for its long-term debt, said credit analysts.
Taro is Sun’s first major overseas acquisition. The company intends to fund this deal with internal accruals and proceeds from its earlier $350 million foreign currency convertible bonds issue.
Sun’s earlier foreign acquisitions include the US-based Valient Pharma Inc’s two manufacturing plants located at Hungary and Ohio for a combined valuation of $10 million, and the New Jersey-based Able Lab for $23 million. Both these acquisitions were in 2005. The company also has a wholly owned subsidiary, Caraco Pharmaceutical Laboratories Ltd, in the US.