Abbott, Solvay rise on takeover

Abbott, Solvay rise on takeover

Mumbai: The global takeover of Solvay Pharmaceuticals SA by the US drugmaker Abbott Laboratories on Monday sent shares of both companies’ Indian subsidiaries soaring on the Bombay Stock Exchange (BSE) on Tuesday Solvay Pharma India Ltd shares rose 17.22% to close at Rs959.15, while shares of Abbott India Ltd jumped 17.5% to Rs679. In contrast, the benchmark 30-stock Sensex rose 0.96% to close at 16,852.91 points.

Abbott India broke its 10% circuit filter after two minutes of trading on Tuesday at Rs644.16. Solvay Pharma opened at Rs974.7, and was 19.12% up after Friday’s close, breaking its 10% circuit filter. The markets were closed on Monday on account of the Dussehra festival.

The rise in the two stocks, which were not known for being aggressively traded, was largely because of investors excitement that the imminent merger of the two companies in India would create another large multinational drugmaker here, market analysts tracking the Indian drug sector said.

Abbott India had revenue of Rs678 crore for the financial year ending December, while Solvay Pharma India had sales of Rs201 crore in the same period.

Abbott Laboratories on Monday announced it would pay $6.6 billion for the pharmaceutical business of Belgium-based chemicals group Solvay SA. The global merger will bring more than $3 billionof sales to the Chicago-based drug major Abbott, which had revenue of about $30 billion in 2008.

In India, a merger of these two companies will create a Rs1,300 crore (based on revenues between January 2009 and August 2009) multinational drug company, putting it in the same league as Novartis India Ltd and Pfizer Ltd.

The product mix of these two companies, and the combined field force of over 2,000 people, are the two key factors that will make the business of the joint entity formidable in India, said Kirit Gogri, a drug sector analyst at Mumbai-based brokerage Quant Capital.

The key trigger for Solvay shares rising on Tuesday is an expected open offer by Abbott for public shareholders, said Sarabjit Kaur of Angel Broking Ltd Globally, the acquisition would also add Solvay’s $500 million annual research and development spending to Abbott’s research investment of about $2.7 billion a year.

“The synergic benefits following the increase in size of two comparatively smaller companies looks primarily the reason for the rise in share prices of both the companies," said another pharma analyst with a foreign brokerage and investment bank who didn’t want to be named.