Sun Pharma makes open offer for Zenotech

Sun Pharma has made an open offer to buy 28.1 per cent of small sized biotech company Zenotech Laboratories Ltd, which could cost up to Rs 18.41 crore ($3 million). The deal is triggered pursuant a larger transaction where Sun Pharma is acquiring Ranbaxy Labs.

Ranbaxy currently owns 46.79 per cent stake in Hyderabad-based Zenotech. Japan’s Daiichi Sankyo, which is the parent of Ranbaxy, separately holds 20 per cent of the company.

Since Sun is acquiring Ranbaxy, it triggers a mandatory open offer for Zenotech due to change of ownership. If the offer is successful, Sun would own around 74.9 per cent of Zenotech, just short of the ceiling of 75 per cent to maintain it as a listed firm.

Notably, Zenotech’s previous promoters led by Jayaram Chigurupati, still own 24.8 per cent of the company. The success of the open offer could depend on Chigurupatis tendering their shares. But it is not entirely dependent on them, given that Daiichi Sankyo and other public shareholders together own around 28 per cent.

Zenotech has had a troubled history. Chigurupatis were previously locked in a major tussle with Daiichi Sankyo over selling their holding.

The case relates to the deal between Daiichi Sankyo and Ranbaxy six years ago. Ranbaxy had acquired shares from the open market and from the Chigurupati family in 2007 and also came up with an open offer in January 2008, which pushed its stake to close to 47 per cent. Following Daiichi's acquisition of Ranbaxy, which was completed in November 2008, the Japanese company indirectly acquired Ranbaxy's stake in Zenotech. This had triggered a mandatory open offer to buy more from public shareholders of Zenotech.

Chigurupatis had cried foul and said Daiichi Sankyo had promised open offer at Rs 160 a share. However, this was disputed and the Japanese firm eventually made an open offer at Rs 113.62 a share. Chigurupatis held on to their stake even as Daiichi Sankyo completed the offer and, in effect, got control of the firm.

Zenotech shares crumbled over time and currently trades around Rs 20 a unit. The stock moved up 4.96 per cent to close at Rs 22.2 a share on the BSE in a weak Mumbai market on Friday.

Sun Pharma has made the open offer at Rs 19 a share. Citigroup is managing the open offer.

The offer price may not be good enough to rope in Chigurupatis to tender their shares given that they were not willing to budge from their previous demand five years ago.

However, Daiichi Sankyo which currently owns 20 per cent, may well tender all its shares to exit from the firm. It would certainly book a big loss on its investment in Zenotech. It had bought the shares for around Rs 78 crore five years ago and may get to encash just around Rs 13 crore if it tenders all its shares to Sun. Other public shareholders own just around 8.38 per cent of Zenotech.

Zenotech clocked revenues of Rs 3 crore with net loss of Rs 25.5 crore for the year ended March 31, 2013.

Chigurupatis had previously sold another group firm Hemarus, which is into sugar milling business. In late 2011, Singapore-listed Olam International Ltd, a supplier of agri and food commodities, acquired Hemarus Industries Ltd at an enterprise valuation of $73.8 million or Rs 340 crore. The deal involved a cash payment of $8 million and part assumption of debt of approximately $66 million.

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