A global acquisition is of great interest to Indian shareholders of multinational companies. If a holding company is acquired, it may result either in an open offer or a de-listing. Both result in share prices rising.
If neither happens, the prospect of a business re-organisation leads to hope of better returns. Solvay Pharma India Ltd’s shareholders find themselves in a similar position. The Solvay group has decided to sell its global pharmaceutical business to Abbott Laboratories.
Solvay’s share price is at Rs919, up by 12% from the previous week’s close. It had hit a 52-week high of Rs1,010 before settling lower. Its global pharmaceutical business was sold at an enterprise value to sales multiple of two times. It is trading at similar valuations now.
Solvay is a small but fast growing drugmaker, with a turnover of Rs200 crore in the year ended March. Sales grew by 23% in the first half of the current fiscal year. Abbott is present in India through Abbott India Ltd, also a listed company.
Globally, Abbott and Solvay’s pharmaceutical businesses complement each other in gastroenterology, cardiovascular and neuroscience segment.
Global integration: Abbott Laboratories headquarters in Illinois, US. The Solvay group has decided to sell its global pharma business to Abbott. The transaction is likely to be completed in the March quarter. John Zich / Bloomberg.
In India, Solvay is present in women’s health, neuroscience, gastroenterology and vaccines, according to information on its website. As part of their global integration, the Indian operations, too, can be expected to see some realignment.
What happens now? The Solvay-Abbott transaction is expected to be completed in the first quarter of 2010. An open offer seems likely, since it is an all-cash acquisition. The offer price will be determined as per India’s capital market regulator’s takeover rules. Integration in India could involve both listed companies. Abbott India has revenues of Rs690 crore and its share price has gained 20% to Rs692 from the previous week’s close.
There are two possibilities. Abbott may choose to keep both subsidiaries separately listed and only integrate certain functions. Or, after it makes the open offer to Solvay’s shareholders, it may merge the two companies. Coincidentally, the promoter shareholding in both companies is around 69%.
Abbott India’s investors seem to be anticipating the latter possibility. If a merger does happen, they will gain a faster-growing and more profitable business. Based on latest full year results, a merger would add about 29% to Abbott India’s sales and about 50% to its net profit.
That explains their enthusiasm.
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