MUMBAI: French multinational pharmaceutical company Sanofi has emerged as the highest bidder for the domestic formulation business of Elder Pharma, ahead of PfizerBSE -0.68 % and Glaxo.
Paris-based Sanofi is understood to have bid for all the brands, valuing the Mumbai-based company at Rs 2,500-2,700 crore. Other contenders such as Glaxo have only shown interest in specific brands, said four people close to the transaction.
Elder PharmaBSE 3.14 % Chairman and MD Jagdish Saxena did not answer specific questions on the subject while Sanofi did not want to comment on market rumours.
On Thursday evening, Elder Pharmaceuticals informed BSE that the company board had approved a proposal on Thursday for "carrying out restructuring of the company's business involving either raising of capital, hiving off of assets or other strategic options and have decided to appoint advisors for this purpose".
The purpose of the exercise was to reduce debt, Elder told the exchanges. Elder's debt of Rs 1,300 crore is almost double its market capitalisation of Rs 726 crore. Shares of Elder Pharma gained 7% for the 30 days ended July 11, 2013. On Thursday, it closed flat at Rs 353.90.
Sanofi's rather more aggressive approach stems from its desire to reach out to a large number of people in emerging markets like India to reverse a decline in revenues as patents expire on some of its best-selling pharma products, industry experts said.
The multinational company acquired Universal Medicare in 2011 to ramp up sales from nonprescription products. "The acquisition of Elder Pharma's brands fits into its over-the-counter strategy," said an analyst with amultinational research firm. Elder Pharma's calcium supplement brand Shelcal has a market share in the range of 30-32%. The deal is expected to happen before August 14 if the promoters of Elder Pharma and the prospective buyers come to a broader understanding, said one of the persons quoted above. As MNC pharma companies prefer to take over brands sans people and facilities, Elder may have to find a strategy to relocate its 3,000-odd employees. "Promoters will have to take a final call," said the person.
Elder Pharma, promoted by Jagdish Saxena, began operations in 1987 largely by selling basic antibiotic products. Alok and Anuj, the two sons of the founder, now run the business. Alok is the joint managing director.
A number of Indian pharma companies have recently cashed out at a valuation of three to four times their annual sales. The most prominent example is that of Piramal HealthcareBSE 0.08 %, which has sold its domestic formulations business to Abbott Labs for more than Rs 17,000 crore in May 2010.
More recently, promoters of Strides Labs sold their injectibles business to Mylan for Rs 9,000 crore. "Given the importance of the Indian pharma market to global companies, there will be interest for high-quality deals. However, recent regulatory issues and business environment have introduced a strong sense of caution among MNCs investing in India," said Sujay Shetty, partner-pharma at PwC.
Elder Pharma posted a 9% rise in turnover at Rs 1,454 crore for the year ended March 2013. It has accumulated debt of Rs 1,300 crore as a consequence of expanding operations through acquisitions. The company predominantly earns its revenues from the domestic market and the ongoing slowdown seems to have impacted its performance. The company's operating margin for FY13 is down 100 bps to 14.8% because of high interest costs, which have been above Rs 100 crore in the last two fiscals.