The week began with a sharp fall on Dalal Street. The indices tanked in line with global markets. The Nifty just about managed to hold on to the 5,000 mark, ending the session at 5,034, down 101 points. The Sensex shut shop at 16,781, down 336 points. The advance-decline was expectedly poor at 1:4.
Will Nifty revisit 4,800?
Nischal Maheshwari, Head of Research, Edelweiss, is not sure if the Nifty will re-test 4,800 levels in June or July. But he is confident that the markets will remain volatile for the next 3-6 months. "This is a kind of situation we had seen in the US, a similar kind of situation is there is Europe today. If a Hungary kind of a situation happens, it will create panic among the market and that could be fuel to see the market going around to even 4700-4800 levels."
Sell is Technical Analyst Ashwani Gujral call. "The markets may go down slowly or may go down in a fast manner. But 5,150-5,200 is sort of becoming a ceiling because bull markets are based on confidence and conviction. They are not based on headline risk and people feeling uneasy about what could happen overnight. Today, the Nifty has held 5,000 but we will have to see for how long."
But Apurva Shah of Prabhudas Lilladher expects the markets to trade rangebound in June. "The markets are likely to move somewhere around these levels itself. I do not see any major gains from the market in the coming weeks. I do not see any major buying emerging over the next 30-45 days."
Global cues may hurt markets going forward, said Vibhav Kapoor of IL&FS. "We saw a very good bounceback from 4800, which is the bottom end of the range, last week and have had a good recovery after that. As of now that range of 4850-5400 stands. At the same time, the global situation is getting a little bit more nervous than it was earlier. So if there is a global meltdown, then there's always the risk of this range breaking on the downside. I would say the chances of that have increased a little bit over the past few weeks. But till that range breaks or does not break, you are still in that 4,800-5,400 band."
Will 2010 be a year of consolidation for markets?
Will weak global cues break the back of Indian markets or will the indices show resilience? Jyotivardhan Jaipuria of DSP Merrill Lynch sees the markets consolidating in 2010. "We had a great rally last year and this year we are going to really do nothing much on the index, probably just move around in a narrow range, which is good for the market in the longer-term. We will be in one of the narrowest ranges we have had for the market in a long time. The move this year has been just 2,000 points or something."
Nilesh Shah, Deputy MD, ICICI Prudential AMC, sees overseas inflows continuing over the next couple of months. "We have a fairly large variety of offshore investors. During this entire downfall, the strength and the stability which exchange traded funds (ETFs) have provided has actually surprised me. Some of the long-only investors are actually looking at corrections to buy. At every dip, they are seen accumulating stocks. So except for momentum or hedge funds, which badly have to redeem because of redemption or market calls, we will actually end up seeing quality investment coming in the next couple of months."
Monday, June 7, 2010
The most expensive pharma deal ever-www.moneycontrol.com
It took four hours for Ajay Piramal to negotiate a whopping USD 3.7 billion valuation for his generics business with Abbott. Just how did he pull it off?
The secret rendezvous was set at a hotel in Dubai early this year. Ajay Piramal, the chairman of Piramal Healthcare, India’s fifth largest pharmaceutical company, and his daughter Nandini had a two-hour meeting lined up at this carefully chosen neutral location. They met up with Miles White, chairman of USD 30 billion Abbott Laboratories, the world’s seventh largest drug maker. A couple of weeks later, the Piramals met another senior Abbott executive Olivier Bohuon, executive vice president pharmaceuticalbusiness for a couple of hours. During his meeting with White, Piramal handed over a succinct three page note detailing his basis for the valuation. White would have to revert within a week, if the deal was to be consummated. Eventually, White did get back, and offered nearly as much as Piramal had asked for.
Today, most pharma industry watchers would die to get hold of a copy of that note. After all, it formed the basis for the Rs 17,500 crore deal that Piramal clinched for abusiness that he had started 22 years ago with a capital of just Rs 16.5 crore. This isn’t quite the biggest deal in the Indian pharmaceutical industry. In 2008, Japanese firm Dai Ichi paid USD 4.6 billion for a 50% stake in Delhi-based Ranbaxy Laboratories, India’s largestpharmaceutical company . Yet the valuations would make it one of the most expensive, especially for a firm like Piramal which sells inexpensive, off patent drugs (also called generics). Abbott will eventually pay Piramal nine times the current sales, 60 % more than what the Delhi-based Singh brothers — Malvinder and Shivinder — got for selling their stake in Ranbaxy.
Piramal did not rely on any advisors or investment bankers. He says that he arrived at the deal valuation after a few discussions with his daughter Nandini, who is now an executive director in the company. “It took about four hours of my time to negotiate the deal,” says Piramal. Only two executives from Piramal’s side assisted Abbott’s team in conducting their due diligence over a couple of weeks.
Despite the huge premium it is paying, there are, of course, quite a few advantages for Abbott. It will get total control of Piramal’s domestic drug sales business, plus a factory in Baddi, Himachal Pradesh, that manufactures these products. Unlike Ranbaxy, Abbott won’t need to go through any stock market related regulatory issues since it is just buying a business division and not a listed company. And the icing on the cake: Abbott will become India’s No.1 domestic company beating rivals like GlaxoSmithkline and Cipla. There’s little doubt that the deal will now force global pharma companies like Sanofi-Aventis, Glaxosmithkline and Pfizer, who are looking to expand their Indian foot print, to pay a lot more for local assets.
Even a year ago, Piramal says he had no intention to sell off the business. Pressure from the multinationals was gradually mounting. He had met up CEOs of global drug majors, including Abbott’s White, who had shown interest in striking a deal with Piramal earlier too. It was only late last year that Piramal started having a second thoughts about running his domestic pharmaceutical business.
Last year was also when MNC pharma firms like Pfizer inked the most number of deals with Indian firms for partnerships in manufacturing and research. Says an executive who works closely with Piramal, who did not wish to be named: “Piramal felt that just like it made sound sense to get into the business when MNCs were winding down their presence in India in the 1980s, it will be a good idea to quit the business when they are coming back.”
To recap, when Piramal inherited the family textile business in the eighties, labour trouble and increasing costs had already scuppered any chances of growth. As Piramal searched for new business opportunities, he zeroed in on pharma, convinced that there would be a shortage in primary healthcare services in India. Incidentally, Piramal’s wife, Swati, is a medical practitioner who sits on the board of Piramal Healthcare.
Since there was no patent protection in India, which allowed local companies to copy and sell their drugs cheaply in the country, MNCs increasingly found the going tough. In the late 1980s, instead of creating a business from scratch, Piramal starting buying multinational companies that were exiting the country at that time. His peers didn’t see it quite the same way: They felt MNC talent was far too expensive. Piramal landed some plum deals, capitalising on the desperation of the MNCs to exit the country. In the initial deals, Piramal made sure that he kept his promise that he would retain the people he inherited through thhe acquisition. So as word got around, more MNCs decided to sell their businesses and brands to him.
Piramal also stayed away from copying and selling the drugs sold by multinationals. He also consciously kept away from selling generic drugs in regulated markets, as it meant litigating with MNCs against their patents. Says a former CEO of a Piramal group company: “Piramal always laid a great emphasis on amicability. He kept away from confrontations.”
This time around, when Abbott again proposed a deal, Piramal picked up the gauntlet. Says Piramal: “I thought I would see where the discussion led us to.” If things didn’t go to plan, he would merely pull out of the discussions.
From his vantage point observatory, Piramal could sense the growing buzz about emerging economies. Every major MNC was looking to increase their presence in these markets. Companies like AstraZeneca and Roche have been investing in China in the last five years but none of them had made big moves for India yet. There was a lot riding on the potential of emerging markets, perhaps with reason too. Drug demand was expected to rise on an average 15 percent a year in emerging markets through 2014
He had a clear logic in justifying a higher valuation than Ranbaxy. Says Piramal: “Since we had a pure domestic play on offer, we knew that our valuations should be substantially more than Ranbaxy.” This wasn’t entirely unfounded. The domestic branded generic business is by far the most profitable segment for Indian firms and it is natural that will command a higher valuation, says Manoj Garg, pharma analyst at broking firm Emkay Global Financial Services. Piramal and his daughter Nandini, 28, also did a few simple extrapolations of where theirdomestic business would be headed in the next three to five years. Nandini, an Oxford and Stanford business graduate, was inducted into Piramal Healthcare’s board as executive director in April 2009.
Piramal’s business was already growing at close to 25% in the past couple of years and it had steadily climbed to the No. 5 spot in the Indian market. Piramal erred on the side of caution and pegged the growth at 20%. But he factored in a substantial premium for the scale of thedomestic operations. “There are few businesses of our size available in the domestic market and that too organised in clear business division like MNCs,” says Piramal. So far, Cipla, Sun Pharmaceuticals and Zydus Cadila, who were in the same league as Piramal, had publicly declared that they weren’t interested in selling their business. “At least during my lifetime I won’t sell Cipla as I wouldn’t know how to use up all that money,” says Dr Y.K. Hamied, chairman and managing director of Cipla.
Piramal also knew that Abbott quickly needed a presence in India. Says analyst Nimish Mehta of Mehta Partners: “The trick was perhaps in choosing a buyer who was desperate to have a bigger say in thedomestic Indian market.” Way back in 2001, Abbott had built its strategy around established products. In 2007, it formed a new international unit to focus on the BRIC markets, where competitors like Pfizer and AstraZeneca were striking deals with local players.
Piramal hopes to use the money for three broad purposes. He will invest more money in his existing healthcare businesses as he feels that they have great potential for growth. He has also identified two new business areas, which he will announce in due course. He also plans to reward his shareholders with a special one-time dividend. “I have a few ideas for new business initiatives, but I don’t want to do any kite flying now,” says
The secret rendezvous was set at a hotel in Dubai early this year. Ajay Piramal, the chairman of Piramal Healthcare, India’s fifth largest pharmaceutical company, and his daughter Nandini had a two-hour meeting lined up at this carefully chosen neutral location. They met up with Miles White, chairman of USD 30 billion Abbott Laboratories, the world’s seventh largest drug maker. A couple of weeks later, the Piramals met another senior Abbott executive Olivier Bohuon, executive vice president pharmaceuticalbusiness for a couple of hours. During his meeting with White, Piramal handed over a succinct three page note detailing his basis for the valuation. White would have to revert within a week, if the deal was to be consummated. Eventually, White did get back, and offered nearly as much as Piramal had asked for.
Today, most pharma industry watchers would die to get hold of a copy of that note. After all, it formed the basis for the Rs 17,500 crore deal that Piramal clinched for abusiness that he had started 22 years ago with a capital of just Rs 16.5 crore. This isn’t quite the biggest deal in the Indian pharmaceutical industry. In 2008, Japanese firm Dai Ichi paid USD 4.6 billion for a 50% stake in Delhi-based Ranbaxy Laboratories, India’s largestpharmaceutical company . Yet the valuations would make it one of the most expensive, especially for a firm like Piramal which sells inexpensive, off patent drugs (also called generics). Abbott will eventually pay Piramal nine times the current sales, 60 % more than what the Delhi-based Singh brothers — Malvinder and Shivinder — got for selling their stake in Ranbaxy.
Piramal did not rely on any advisors or investment bankers. He says that he arrived at the deal valuation after a few discussions with his daughter Nandini, who is now an executive director in the company. “It took about four hours of my time to negotiate the deal,” says Piramal. Only two executives from Piramal’s side assisted Abbott’s team in conducting their due diligence over a couple of weeks.
Despite the huge premium it is paying, there are, of course, quite a few advantages for Abbott. It will get total control of Piramal’s domestic drug sales business, plus a factory in Baddi, Himachal Pradesh, that manufactures these products. Unlike Ranbaxy, Abbott won’t need to go through any stock market related regulatory issues since it is just buying a business division and not a listed company. And the icing on the cake: Abbott will become India’s No.1 domestic company beating rivals like GlaxoSmithkline and Cipla. There’s little doubt that the deal will now force global pharma companies like Sanofi-Aventis, Glaxosmithkline and Pfizer, who are looking to expand their Indian foot print, to pay a lot more for local assets.
Even a year ago, Piramal says he had no intention to sell off the business. Pressure from the multinationals was gradually mounting. He had met up CEOs of global drug majors, including Abbott’s White, who had shown interest in striking a deal with Piramal earlier too. It was only late last year that Piramal started having a second thoughts about running his domestic pharmaceutical business.
Last year was also when MNC pharma firms like Pfizer inked the most number of deals with Indian firms for partnerships in manufacturing and research. Says an executive who works closely with Piramal, who did not wish to be named: “Piramal felt that just like it made sound sense to get into the business when MNCs were winding down their presence in India in the 1980s, it will be a good idea to quit the business when they are coming back.”
To recap, when Piramal inherited the family textile business in the eighties, labour trouble and increasing costs had already scuppered any chances of growth. As Piramal searched for new business opportunities, he zeroed in on pharma, convinced that there would be a shortage in primary healthcare services in India. Incidentally, Piramal’s wife, Swati, is a medical practitioner who sits on the board of Piramal Healthcare.
Since there was no patent protection in India, which allowed local companies to copy and sell their drugs cheaply in the country, MNCs increasingly found the going tough. In the late 1980s, instead of creating a business from scratch, Piramal starting buying multinational companies that were exiting the country at that time. His peers didn’t see it quite the same way: They felt MNC talent was far too expensive. Piramal landed some plum deals, capitalising on the desperation of the MNCs to exit the country. In the initial deals, Piramal made sure that he kept his promise that he would retain the people he inherited through thhe acquisition. So as word got around, more MNCs decided to sell their businesses and brands to him.
Piramal also stayed away from copying and selling the drugs sold by multinationals. He also consciously kept away from selling generic drugs in regulated markets, as it meant litigating with MNCs against their patents. Says a former CEO of a Piramal group company: “Piramal always laid a great emphasis on amicability. He kept away from confrontations.”
This time around, when Abbott again proposed a deal, Piramal picked up the gauntlet. Says Piramal: “I thought I would see where the discussion led us to.” If things didn’t go to plan, he would merely pull out of the discussions.
From his vantage point observatory, Piramal could sense the growing buzz about emerging economies. Every major MNC was looking to increase their presence in these markets. Companies like AstraZeneca and Roche have been investing in China in the last five years but none of them had made big moves for India yet. There was a lot riding on the potential of emerging markets, perhaps with reason too. Drug demand was expected to rise on an average 15 percent a year in emerging markets through 2014
He had a clear logic in justifying a higher valuation than Ranbaxy. Says Piramal: “Since we had a pure domestic play on offer, we knew that our valuations should be substantially more than Ranbaxy.” This wasn’t entirely unfounded. The domestic branded generic business is by far the most profitable segment for Indian firms and it is natural that will command a higher valuation, says Manoj Garg, pharma analyst at broking firm Emkay Global Financial Services. Piramal and his daughter Nandini, 28, also did a few simple extrapolations of where theirdomestic business would be headed in the next three to five years. Nandini, an Oxford and Stanford business graduate, was inducted into Piramal Healthcare’s board as executive director in April 2009.
Piramal’s business was already growing at close to 25% in the past couple of years and it had steadily climbed to the No. 5 spot in the Indian market. Piramal erred on the side of caution and pegged the growth at 20%. But he factored in a substantial premium for the scale of thedomestic operations. “There are few businesses of our size available in the domestic market and that too organised in clear business division like MNCs,” says Piramal. So far, Cipla, Sun Pharmaceuticals and Zydus Cadila, who were in the same league as Piramal, had publicly declared that they weren’t interested in selling their business. “At least during my lifetime I won’t sell Cipla as I wouldn’t know how to use up all that money,” says Dr Y.K. Hamied, chairman and managing director of Cipla.
Piramal also knew that Abbott quickly needed a presence in India. Says analyst Nimish Mehta of Mehta Partners: “The trick was perhaps in choosing a buyer who was desperate to have a bigger say in thedomestic Indian market.” Way back in 2001, Abbott had built its strategy around established products. In 2007, it formed a new international unit to focus on the BRIC markets, where competitors like Pfizer and AstraZeneca were striking deals with local players.
Piramal hopes to use the money for three broad purposes. He will invest more money in his existing healthcare businesses as he feels that they have great potential for growth. He has also identified two new business areas, which he will announce in due course. He also plans to reward his shareholders with a special one-time dividend. “I have a few ideas for new business initiatives, but I don’t want to do any kite flying now,” says
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