Bangalore-based Strides Arcolab Ltd, which sold its injectable-medicine unit Agila Specialties for $1.65 billion to Mylan, has struck a deal to buy small drug maker Shasun Pharmaceuticals Ltd in an all stock merger. Based on the previous day's closing share price, the deal is worth a little over $221 million.
The boards of both the companies have approved a scheme of amalgamation between the two companies, as per a stock market disclosure.
As per the agreement, each equity shareholder of Shasun will be entitled to receive five equity shares of Strides in lieu of every 16 equity shares held in Shasun. In total Shasun shareholders will own 26 per cent of the combined entity with Shasun promoters becoming co-promoters of Strides.
Shasun promoters will own 9.14 per cent of the combined firm while Strides promoter Arun Kumar will control 23.7 per cent, part of which would be through his majority ownership in another listed company SeQuent Scientific. SeQuent owns around 15.8 per cent of Shasun (factoring in convertible securities), at present.
Moreover, healthcare-focused PE firm OrbiMed, which owns 10 per cent of Shasun, will own 2.57 per cent of the combined entity, post the merger. OrbiMed had put in Rs 50 crore to buy a stake in Shasun in 2012. It is already sitting on 2.5x in unrealised gains on its two year old investment.
Another PE firm Apax Partners recently picked up a 1.2 per cent stake in Strides which would shrink to 0.88 per cent.
The combination would create a vertically integrated pharma company with strong presence in front-ended regulated markets, finished dosages, emerging markets branded generics, institutional business, active pharmaceutical ingredients and contract research and manufacturing services.
The merger will enhance finished dosages portfolio in niche and complex domains with a pipeline of over 100 products and accelerates product filings with a combined R&D strength of over 400 personnel.
This merged entity is likely to leverage Shasun’s API manufacturing capacities and shift focus towards niche API’s aligned with finished dosages portfolio and pipeline. Strides said the deal would also create significant synergistic opportunities in operations and cost savings through economies of scale.
The combined firm would have annual revenues of over Rs 2,500 crore and would be among the top 15 listed pharma companies in the country.
Commenting on the merger, Arun Kumar, founder and group CEO, Strides stated, “Since the divestment of our injectables business we have refocused on our oral finished formulation business. Today’s proposed combination with Shasun accelerates our strategy and growth prospects by creating a larger scale, fully integrated, leading Indian pharma company with multiple growth drivers and synergies that will allow for enhanced profitability and more efficient use of our combined infrastructure and enhanced value creation opportunities for the combined shareholder group.”
Adding to this Abhaya Kumar, CEO and managing director, Shasun said, “Strides and Shasun bring complementary strengths and shared values of developing products and market opportunities across geographies and the combination accelerates both scale and scope.”
The appointed date for the scheme of amalgamation is April 1, 2015 and is expected to close by June 2015.
S.R. Batliboi & Co. LLP and Price Waterhouse & Co. LLP, provided the joint valuation report on the fair exchange ratio. Jefferies India Private Limited provided the fairness opinion to the board of Strides while IDFC Securities Limited provided the fairness opinion to the board of Shasun.
Amarchand & Mangaldas & Suresh A Shroff & Co. and DSK Legal acted as the legal advisors for the transaction.
Shasun shares declined 0.38 per cent to close at Rs 195.75 a share while Strides saw 9.2 per cent rise in share price on the BSE in a flat Mumbai market on Monday.
For Strides this comes as the third deal in as many months. It made a strategic investment in Oncobiologics Inc and also bought majority stake in branded generics business of Bafna Pharmaceutical, a Chennai-based small size drugmaker, for Rs 48.1 crore ($8 million).
The firm is flushed with cash from the sale of Agila last year to US-based Mylan. Earlier this month Strides received $150 million as the full and final settlement from the American drugmaker Mylan Inc for selling Agila Specialties restricting the overall transaction value to $1.65 billion as against up to $1.75 billion, as originally envisaged.
Shasun Pharmaceuticals, which has presence in Europe, Japan and the US apart from the Indian market, focuses on manufacturing API ingredients and formulations. Earlier this year it acquired the global rights to develop and commercialise Ibuprofen 12-hour extended release OTC tablets as well as associated technology besides rights to Nuprin analgesic trademark from US-based drug maker ScolrPharma.
This would be the second such mergers in Indian pharma space. Early this year, Sun Pharma announced a deal to acquire and merge Ranbaxy in a deal worth $3.2 billion ($4 billion factoring in debt). This deal is awaiting regulatory clearances.
Strides sells stake in biotech venture
Meanwhile in a separate development, Strides Arcolab said it has entered into an agreement to sell 25.1 per cent stake in Stelis Biopharma Private Limited (Stelis), the biotech arm of Strides, to GMS Holdings for $21.9 million to fund its greenfield project.
The transaction is expected to close in Q4 of 2014.
Strides has invested $16.9 million in Stelis to date.
Strides and GMS will invest an amount of $61.9 million taking total equity investment in Stelis to $78.8 million.
GMS to initially invest $8.5 million for a 25.1 per cent stake in Stelis on closing, at a premium of 50 per cent of the current equity investment by Strides.
The deal envisages further equity infusion of $40 million by Strides and $13.40 million by GMS to be in tranches based on project and product development needs over a period of two years, in proportion to their ownership at par.
Stelis also has in place, a project credit line of $40 million
With the total equity infusion of $78.8 million and credit line of $40 million, no further funding will be required till commercialisation.
Commenting on the transaction, Joe Thomas, chief corporate development officer of Strides and head – biotech division stated, “GMS Holdings has a track record of having partnered in successful businesses, with a strong presence in the MENA region. This partnership will accelerate our emerging market strategy for the biotech business.”
Ghiath Sukhtian, chairman of GMS Holdings stated, "Strides has a long track record of building successful pharma platforms and we believe that by joining our efforts on this investment we can create significant value for both our groups."
GMS is privately owned by a Jordan-based group and has a diversified set of businesses spanning various sectors.