US-based Abbott Laboratories is set to acquire the domestic formulations business of Piramal Healthcare Ltd for $3.72 billion (Rs. 17,000 crore) in one of Corporate India’s biggest acquisition deals, but the Piramals will retain a huge chunk of the business and be rich in cash to pursue expansion and innovation.
Abbott will make an upfront payment of $2.12 billion (Rs 9,900 crore) to the Indian company. The rest will be paid in annual payments of $ 400 million over the next four years. The deal is expected to conclude in the second quarter of 2010.
The sale, which is essentially of the generics business, 350 brands and one manufacturing unit, does not involve an open offer to minority shareholders, who will instead get a special dividend. The company’s shares fell 12 per cent to Rs 502 as it did not seem to excite investors.
“Some portion will be invested in company’s other businesses while the company will also explore new sectors for investment,” Piramal said.
Abbott, which had $30.8 billion in revenues in 2009, says the deal will give it 7 per cent market share in India, ahead of Cipla and Ranbaxy.
"Abbott expects that growth of its India pharmaceutical business with Piramal to approach 20 per cent annually, with expected sales of more than $2.5 bn by 2010," Abbott said.
“We do not have clarity as to where the cash generated will be deployed. Of course, the domestic business was the most attractive part of the overall business of Piramal Healthcare. The absence of that will have some negative implications in terms of growth,” said a research note by ICICI’s securities trading arm.