New Delhi: US buyout firms KKR and Warburg Pincus have tied up with Cipla to form a consortium that will bid for the generics business of Darmstadt, Germany-based Merck KGaA. The due diligence for the asset, which analysts expect could sell for up to $5.5 billion or Rs24,250 crore, is slated to begin in a month's time.
“KKR and Pincus have tied up with Cipla to bid for the Merck unit. While the private equity partners will look into the financials, Cipla will manage the company, given its expertise in generic manufacturing,” a source close to the development said, requesting anonymity.
Cipla's joint managing director Amar Lulla confirmed that the private-equity partners in its bid had been finalized, but stopped short of confirming the names. He also reaffirmed Cipla’s interest in the acquisition. “There is no change in our stance,” he said.
“We have sent our expression of interest to Merck and are awaiting the information memorandum, which should be out this week,” added Lulla. The memorandum will have business and accounting details of Merck’s generics business and will form the basis of a due diligence process.
A Warburg spokesperson declined comment on the fund’s tie-up with Cipla and a Hong Kong-based KKR spokesperson wanted more time to respond because of the Chinese New Year holidays.
Merck has appointed its advisors in investment banking and brokerage firm, Bear Sterns, the source said.
Gurgaon-headquartered Ranbaxy Laboratories, which has also formally expressed its interest in the Merck asset, will be advised by Citigroup, according to a senior executive of the drug maker, who, too, requested anonymity given the sensitive nature of the bid.
Ranbaxy's managing director, Malvinder Mohan Singh, confirmed recently that his company had appointed advisors, but declined to name them. “I have maintained all through that Merck's generics business is a good asset and we will be interested in it, but at the right valuation,” he had said.
If Ranbaxy succeeds in its bid, it will jump from the eighth-largest generics company in the world to No. 3, behind Israel’s Teva Pharmaceuticals and Novartis’ Sandoz unit.
If it wins, Ranbaxy will have a strong edge over rivals, given its India manufacturing base, New Delhi-based private equity fund Chryscapital's managing director Sanjiv Kaul said, adding Indian drug makers will need the support of buyout firms to make an acquisition the size of the Merck unit.
The Merck generics business, which reported sales of $2.39 billion (Rs10,540 crore) in 2006, has generated interest among other Indian drug makers such as Dr Reddy's Laboratories and a clutch of private-equity firms Blackstone, Carlyle Group, Apax Partners, and Providence Equity Partners.
Teva and Sandoz , the two largest generics players in the world, along with Iceland-based Actavis, are also in the running for the Merck unit.
Merck's generic businesses account for more than 45% of the company’s revenues and sells through subsidiaries like Alphapharm in Australia, Merck Generiques in France, Genpharm in Canada, Scandharm in Sweden and Generics, UK. Genpharm opened a US office in 2005.