Orchid Chemicals & Pharmaceuticals has agreed to sell its injectables business to the US-based Hospira for around $400 million (Rs 1,850 crore), a valuation that represents a 20% premium to the Chennai-based firm’s market value and greatly boosts its financial flexibility.
The acquisition includes Orchid’s beta-lactam antibiotics manufacturing complex and pharmaceutical research and development facility at Irungattukottai in Chennai and its generic injectable product portfolio and pipeline.
The two companies, which have had a relationship since 2005, said they had also signed a long-term exclusive agreement for Orchid to supply active pharmaceutical ingredients for the acquired generic injectable pharmaceuticals business.
“We are confident that Hospira will take our generic injectable pharmaceuticals business to even greater heights. This transaction will provide Orchid with the financial flexibility to pursue new growth opportunities,” Orchid managing director K Raghavendra Rao said in a statement.
With this deal, Orchid joins a growing list of Indian companies that have sold parts or entire businesses to global drugmakers that are scaling up operations in fast-growing emerging markets like India. While the promoters of Ranbaxy and Dabur Pharma sold their entire stake to Daiichi Sankyo and Fresenius Kabi, respectively, Wockhardt and Delhi-based RFCL have sold part of their businesses to foreign drugmakers. Earlier this year, Sanofi Aventis bought a majority stake in Shantha Biotech from its French owners Merieux Alliance.
A banker familiar with the transaction said the deal would help Orchid cut debt, notably, help it buyback some $175 million in outstanding foreign currency convertible bonds (FCCB). The company, whose total debt stands at Rs 2,000 crore, had been exploring the option of raising overseas loans to meet its FCCB obligations, and the banker said the deal would allow it make use of the FCCB buyback window available until December 31, to buyback some of the bonds issued to investors at a discount.
The deal will involve the transfer of ownership of the entire injectables division to Lake Forest, Illinois-based and NYSE-listed Hospira, including all its employees. The injectables business is estimated to account for close to 50% of Orchid’s core earnings or EBITDA.
Hospira, which became the largest generic injectables company in the world following its 2007 purchase of Australian generics firm Mayne Pharma for $2.6 billion, recently beat Wall Street expectations in the third quarter helped by the launch of a generic cancer agent.
The two sides had been in talks for close to twelve months but were not able to seal a deal due to differences over valuation, a person familiar with the talks said. Orchid’s market capitalisation stood at Rs 1,554 crore at Tuesday’s closing price.
Orchid was advised by Citigroup on the deal, while Morgan Stanley was the advisor to Hospira.
The transaction, expected to be completed in the first quarter of 2010, has the unanimous approval of both Hospira’s and Orchid’s boards, but needs the approval of Orchid’s shareholders and other regulatory and legal clearances.