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Mylan play on Matrix grid

Mumbai, Aug. 28: Capping weeks of speculation in the media, Mylan Laboratories of the US today announced that it was all set to gain control over Hyderabad-based Matrix Laboratories by purchasing up to 71.5 per cent of its equity for more than $735 million.

The deal is the biggest takeover in the domestic pharmaceutical industry and easily eclipses Dr Reddy’s Laboratories’s (DRL) acquisition of Betapharma of Germany for $570 million, which was the largest acquisition involving an Indian pharmaceutical company till date.

Both Mylan and Matrix today announced that the US company will acquire up to 71.5 per cent of Matrix at Rs 306 per share, thereby valuing the latter at over $1 billion.

Mylan will acquire all Matrix shares currently owned by Temasek (Mauritius) Pte Ltd, entities controlled by Newbridge Capital and Spandana Foundation.

As part of the same agreement with these shareholders, Mylan will acquire shares from Matrix’s chairman N. Prasad. After the transaction, Prasad will continue to own 5 per cent of Matrix’s outstanding shares.

Assuming the open offer is fully subscribed, the total purchase price is expected to be approximately $736 million.

Robert J. Coury, vice-chairman and chief executive officer of Mylan, will assume the responsibility of non-executive chairman of Matrix and N. Prasad, Matrix’s current executive chairman, will become the non-executive vice-chairman of the company.

The Mylan board of directors will be expanded to 10 members and Prasad will join the Mylan board and executive management team as head of global strategies in the office of the CEO.

Rajiv Malik will remain as CEO of Matrix. Stijn Van Rompay, co-founder of Docpharma, will remain responsible for the operations of Docpharma, the Belgian pharmaceutical company that Matrix acquired last year for $263 million.

A Mylan statement said Matrix would remain a publicly traded company in India and will continue to operate on an independent basis. Matrix had revenues of $262 million for the year ended March 31.

The deal underscores the rising interest among multinational pharmaceutical companies which are keen to enter emerging markets like India where production costs for manufacturing drugs are far lower than in developed markets.

Recently, Watson Pharmaceuticals Inc acquired Sekhsaria Chemicals in a move to increase its presence in India where it plans to establish a generic product development centre. At the end of last year, Watson had bought a manufacturing facility in Goa from DRL.

Several pharmaceutical giants were circling Matrix Labs. At one point, the buzz was Teva Pharamaceuticals of Israel was interested in acquiring the company but the Matrix management had vehemently denied it at that stage.

Coury said, “This is an extremely complementary transaction that accomplishes a number of Mylan’s key objectives. The transaction will allow Mylan and Matrix to strengthen and expand their core businesses and competencies while creating significant opportunities for global expansion and growth.”

Prasad added, “Mylan, a proven industry leader, is an ideal partner for Matrix. Our strategic vision remains unchanged and we believe this transaction creates greater growth opportunities for Matrix and its employees and also will allow us to accelerate our existing expansion plans in India and abroad.”

Commenting on the rationale behind the acquisition, Mylan said Matrix would provide it with a significant presence in important emerging pharmaceutical markets, including India, China and Africa, as well as a European footprint and distribution network through Matrix’s Docpharma subsidiary.

By combining Matrix’s active pharmaceutical ingredient (API) and drug development business with Mylan’s expertise in finished dosage forms (FDFs), the transaction is expected to give Mylan a presence across the pharma value chain.

Matrix is the world’s second largest API (bulk drug) player with respect to the number of drug master files (DMFs), with over 165 APIs in the market or under development, and 10 API and pharmaceutical intermediate manufacturing facilities, six of which are FDA approved.

Its Docpharma subsidiary is a leading marketer of branded generics in Belgium, the Netherlands and Luxembourg, and provides Mylan with a platform for building a larger European presence.

Mylan said it expects the transaction to be moderately accretive to the management’s internal earnings estimates in fiscal 2008, the first full fiscal year following the anticipated closing of the transaction, and significantly accretive thereafter. The transaction is expected to close in the calendar fourth quarter of 2006.

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