Blackstone and Carlyle, two of the largest funds in the private equity space, are said to be partnering with Indian companies to buy out German pharma major Merck’s generic business.
Investment banking sources said the two firms are in advanced talks with Ranbaxy and Cipla to gain management control in the generic business. Merck announced its decision to sell its generics division in a deal that could be valued at $5.2 billion (Rs 22,986.60).
The business had revenues of around $2.5 billion (Rs 11,056 crore) in 2006. The generic business makes products such as Epipen, a life-saving, pen-sized epinephrine syringe that enables self-injection of a single dose.
These firms would join three US-based private equity firms -- Cinven, Permira and Texas Pacific Group -- which are said to be interested in the business. The Merck business, if it goes to Ranbaxy, could catapult it to the third position in the world generics market in terms of size, third-largest drug maker after Teva Pharmaceutical Industries Ltd of Israel and Sandoz, the generic arm of Switzerland-based Novartis, said a Ranbaxy spokesperson.
The Indian company’s revenues could nearly triple to around $3.8 billion (Rs 16,805) in case of a successful acquisition, according to industry sources. A Cipla spokesperson refused comment citing Sebi regulations. Dr Reddy’s Laboratories (DRL) sources did not respond to an e-mail query.
Blackstone and Carlyle spokespersons were unavailable for comment. Ranbaxy sources neither confirmed, nor denied that Blackstone and Carlyle have approached them for partnering in the deal. The company is weighing all options, said a Ranbaxy spokesperson.
It would not be possible for the company to raise the entire amount of close to Rs 23,000 crore through the capital markets, said a broker on condition of anonymity, citing interests in the company stock. Ranbaxy has not made any preparations, nor has it started the due process for raising capital, said the spokesperson.
Private equity firms have been intensifying their activity in the pharmaceuticals industry in the country, and they could provide the much-needed boost to Indian players who want to go for big-ticket deals, said the managing partner of a foreign private fund that manages $15 million in assets to invest in the pharmaceutical space in the country.
Cipla, Dr Reddy’s Laboratories and Ranbaxy are said to be in the race for the business among Indian players. However, the size of the bid indicates that the companies would need to raise additional capital for the buyout.
Both Ranbaxy and DRL have revenues over $1 billion (Rs 4,400 crore). While Ranbaxy crossed the billion-dollar mark two years back, DRL crossed the milestone in the nine-month period ended December 2006.
However, none of these companies have internal resources enough to bid for the Merck facility alone, said sources. This would mean that they would definitely have to rope in investors to share its ride. Merck of Germany is distinct from Merck & Co, the US-based pharmaceutical manufacturer.