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Sanofi, Novartis and GSK in race to buy Elder Pharma's domestic formulations business

MUMBAI: Multinational pharmaceutical majors such as Sanofi, NovartisBSE 0.16 %and GSK are in the race to buy out the domestic formulations business of debt-ridden Elder Pharmaceuticals. 

Sanofi and GSK have put in non-binding bids, Novartis has signed a non-disclosure agreement. Sanofi is understood to have appointed HSBC as its investment banker. Private equity funds have also started negotiations to join the bidding process, according to three people close to the transaction. Elder Pharma, mired in huge debts, has mandated Japanese Investment bank Nomura and consultancy firm Ernst & Young to find a buyer through a negotiated transaction. 

The company's advisor E&Y has completed vendor due diligence which was undertaken to ascertain the real value of assets that are being sold. "Potential buyers have already received the diligence report," said one of the persons quoted above. The prospective
investors will submit final bids based on their analysis of the vendor diligence report. 

Spokespersons of Sanofi, Novartis and GSK did not want to comment on 
marketspeculations and rumours. Elder Pharma's chairman and managing director Jagdish Saxena and its joint MD Alok Saxena did not answer specific queries on the issue either. 

Elder Pharma, promoted by Jagdish Saxena, began operations in 1987 largely by selling basic antibiotic products. Alok and Anuj Saxena, the two sons of the founder, now run the business, where Alok is the joint managing director. 

The company's promoters are looking at the option of selling the domestic formulations business along with its 3,000-odd employees. MNCs, however, are keen on acquiring the business and brands but without the employees as they have enough manpower to run Indian operations. The company's top-selling product today is calcium supplement Shelcal with annual sales of Rs 140 crore. 

Private equity funds have followed the practice of acquiring companies lock stock and barrel. Sales and marketing executives account for a large chunk of Elder's manpower. Elder's market cap of Rs 699 crore is lower than some of its peers like Unichem's Rs 1,545 crore, but higher than Dishman Pharma's Rs 552 crore. Taking the multiple of 2 times of its annual sales, which has been the norm in the recent past, the company should fetch a value of Rs 3,000 crore. 

Promoters of Indian pharma companies recently cashed out at a valuation of two to four times of annual sales of their respective companies. Piramal Healthcare sold its domestic formulations business to 
Abbott Labs for more than Rs 17,000 crore, while more recently, promoters of Strides Labs sold its injectible business to Mylan for Rs 9,000 crore. Elder PharmaBSE 5.00 % posted a 9% rise in turnover at Rs 1,454 crore for the year ended March 2013.