Mumbai: The world’s largest drug maker by sales, Pfizer Inc., is in an advanced stage of talks with Wockhardt Ltd to acquire part of the business of the embattled Indian pharmaceutical firm, according to three people familiar with the development.
In a potentially complex transaction, Mumbai-based Wockhardt will likely spin off the for-sale units, which include its biotechnology and veterinary divisions, into separate companies before the deal, said an executive at a corporate adviser on mergers and acquisitions in the healthcare sector.
Desperate moves? Wockhardt chairman Habil Khorakiwala.Madhu Kapparath / Mint
“The deal, which could value the comparatively smaller businesses at around Rs120 crore, may be signed in June itself,” said the executive, who didn’t want to be identified. The company had a market capitalization of around Rs1,611.4 crore at Friday’s market price, according to Bloomberg data.
Wockhardt, India’s sixth largest drug maker by sales, is trying to raise funds to repay short-term loans and meet other liabilities. The company, which had net debt of about Rs3,400 crore as of 31 December, said on 31 March that it referred itself to ICICI Bank Ltd for a debt recast. Its debt to equity ratio, a key indicator of a company’s financial health, is 3:1.
Habil Khorakiwala, its main promoter and long-serving chairman and managing director, has been replaced as managing director by younger son Murtaza Khorakiwala, as the drug maker tries to restructure its business and cut mounting debt. The senior Khorakiwala remains chairman.
Pfizer’s global team that handles acquisition opportunities in Asia has had several rounds of talks with Wockhardt’s bankers and senior management, said a person at New York-based Pfizer who is close to the development. He declined to be identified pending the completion of the talks.
Another person familiar with developments at Wockhardt said the drug maker had cancelled some high-value orders in biotechnology research and development in anticipation of an imminent change in decision-making at the company.
“Talks with Pfizer are almost at the final stage, and they are finalizing the valuation part now,” the person said on condition of anonymity. This person, who works for a company that supplies to Wockhardt, claimed that a senior company executive cited this as the reason for cancelling the orders.
An executive at Sampark Public Relations Pvt. Ltd, who is authorized to speak on behalf of Wockhardt, said: “We have taken shareholders’ permission for divesting the animal healthcare business, but would not like to comment on specific transaction details till it is consummated.”
On the biotechnology business, the same executive said: “We will evaluate various options to go to the market for bio-similar products, which will go off-patent beyond 2013, and we hope to take a decision on (a) marketing/strategic alliance in 12-15 months from now.” Bio-similar products are close equivalents of existing and patented biotechnology products.
In an email response to questions from Mint, a Pfizer spokesperson said: “We do not comment on market rumours and speculations.” Wockhardt is in the drug formulation business, which includes research and development, manufacturing and marketing. It is also present in active ingredient manufacturing and contract manufacturing for global clients.
Biotechnology and animal healthcare are two other areas in which the company has a presence, although their revenue contribution is comparatively small. The veterinary business was worth about Rs50 crore as of December. In the biological segment, the company has successfully launched an insulin product and a hepatitis-B vaccine. It also has bio-similar products in its research and development pipeline.
Earlier this month, Pfizer, one of the largest firms in the animal health market, acquired the veterinary business of RFC Ltd, owned by ICICI Venture, for an undisclosed amount. ICICI Venture, a unit of India’s second largest lender, is one of the country’s biggest venture capital firms.
Pfizer, which last year announced that it would expand in emerging markets such as India, has been on the lookout for business opportunities in the nation.
Wockhardt’s liabilities include about $140 million (Rs664 crore today) of foreign currency convertible bonds due for redemption by October.
The Khorakiwala family has pledged a 43.11% stake in the company against loans taken by the company. To meet its liabilities, the company requires to raise between Rs1,000 crore and Rs1,300 crore immediately.
Wockhardt posted a net loss of Rs159 crore on sales of Rs3,592 crore for the year ended December. The drug maker posted large mark-to-market (MTM) losses on foreign currency loans and derivatives for the year. MTM is an accounting practice of valuing a financial asset at its market value and not the cost at which it was bought.
The company in December mandated the Indian investment banking arm of Swiss bank UBS AG to help sell its assets. However, it recently revised that mandate to a strategic stake sale after it was unable to find any buyers for recently acquired global assets, or for assets in India that are not central to its main business.
A merchant banker familiar with the mandate had in March told Mint that the group might recast the firm by creating a new entity that would focus solely on the domestic business.
Wockhardt has seen a steep fall in its valuations: Its shares lost about 74% in calendar 2008 and have lost about 32% so far in 2009. Wockhardt shares on Friday closed at Rs146.95 each, up 2.55%, on the Bombay Stock Exchange. The benchmark Sensex closed 1.13% down at 15,274. 94. The shares of the company are traded in India and Luxembourg while its bonds are traded in Hong Kong.