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Torrent set to gulp Elder brands

Mumbai, Dec. 13: India’s pharmaceutical industry today took a break from the frequent instances of multinational companies acquiring local firms when Ahmedabad-based Torrent Pharmaceuticals (Torrent) agreed to buy the formulation business of Elder Pharmaceuticals Ltd (Elder) for a consideration of Rs 2,004 crore.

Following the acquisition, Torrent will gain access to 30 brands in women’s healthcare, pain management, wound care and nutraceuticals therapeutic segments that include Shelcal, Chymoral, Eldervit, Formic and Carnisure.

While the transaction is expected to be closed in the first half of the next calendar year, it will also involve the transfer of Elder employees engaged in sales, marketing and operations of the India business.

Further, under the terms of the deal, Elder will continue to manufacture and supply the products at its existing facilities for Torrent for a period of three years.

Torrent would fund the acquisition through a mix of internal accruals and bank borrowings. The transaction is expected to benefit the company by expanding its brand equity and presence in the over-the-counter (OTC) segment and in therapeutic segments such as women healthcare and pain management.

Sources said Elder would use the proceeds from the deal to retire its debt of around Rs 1,400 crore.

“The transaction is a strategic fit for Torrent and will strengthen its core prescription-based business. This acquisition strengthens our position in the women healthcare, pain management & vitamins/nutrition segments by enhancing and accelerating market access. It is also expected to enable cost and revenue synergies in Torrent’s domestic formulations business,” Sudhir Mehta, chairman, Torrent Group, said.

Alok Saxena, managing director & CEO, Elder, pointed out that while the deal would enable the company to de-leverage its balance sheet, the company will now focus on growing its in-licensing, anti-infectives and export business.

The sale was, however, not received well by the stock markets. On the BSE, the Elder Pharma scrip skid to an intra-day low of 287.75, a drop of 11.42 per cent. The share later recovered some of these losses to end at Rs 298.30, a fall of 8.17 per cent over its previous close.

Market circles said that the fall was due to the fact that while brands that contributed largely to its profits were no longer in its portfolio, there were concerns relating to the margins of its residual business after the acquisition.

The Torrent share, too, ended in the red at Rs 479.50, a fall of over 4 per cent.

While the domestic pharmaceutical industry has seen numerous cases of acquisitions in the recent past, most of them have been done by overseas firms. These include the acquisition of Ranbaxy Laboratories by Daiichi Sankyo of Japan in 2008, the sale of the domestic formulation business of Piramal Healthcare to Abbott Laboratories and the acquisition of Shanta Biotechnics by Sanofi-Aventis in 2009. More recently, Mylan announced the acquisition of Agila Specialties Pvt Ltd, the developer and manufacturer of generic injectable products, from Strides Arcolab.

Amid such a trend, the Union government also looked at the possibility of putting a 49 per cent cap on the foreign direct investment (FDI) in existing pharmaceutical projects. The proposal was, however, opposed by the ministry of finance, though the department of industrial policy and promotion and the health ministry were in favour of the idea.

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