Reddy's, Ranbaxy not to go all out for Merck

With the bidding for the generics business of Merck set to begin from Monday, domestic pharmaceutical companies in the fray, Ranbaxy Laboratories and Dr Reddy's Laboratories, are unlikely to go for an all-out bidding war.

Merck's generics business, with revenues of around $2.5 billion last year, is expected to fetch a valuation of $ 5 billion. This valuation may deter the $1 billion turnover Ranbaxy and Dr Reddy's from successfully attempting the bid, said industry observers.

Malvinder Mohan Singh, CEO and MD of Ranbaxy Laboratories sounded doubtful on going an all-out to acquire Mercks Generics.

"We are looking to evaluate the asset and we are going to be practical about it. We are not in a rat race for acquisition but are focused on creating value for our shareholders in the best way we can," Malvinder Mohan Singh said.

The sources said private equity funds were not also keen on funding Ranbaxy for this acquisition. "The private equity funds want to pick up a stake in Ranbaxy against their funding of the bid. Ranbaxy, on the other hand, wants to offer the funds stake in a special purposed vehicle, in case, it wins the bidding. Due to the differences, now it seems that the private equity funds have lost interest in funding Ranbaxy for the bid," said bankers close to the development.

The sources said debt-laden Dr Reddy's might even not attempt the bid. Analysts said Dr Reddy's have long- and short-term bank loan burden of over Rs 2,785 crore (as on December 2006) and net interest expense in third quarter was Rs 30.9 crore, mainly accrued through the the acquisition of Betapharm for Rs 2,800 crore in an all-cash deal and the acquisition of Roche's API unit for over Rs 260 crore.

"It is a company policy at Dr Reddy's not to comment on merger and acquisition transactions and opportunities," said Dr Reddy's spokesperson.

"I think the Indian companies are late to firm up plans for such a big and risky acquisition involving billion dollars. They may submit the bid, but lacks the financial back up to match the bids," said an industry source who had orchestrated acquisitions for a multinational pharmaceutical company.

Two weeks ago, Business Standard had reported Cipla, another Indian company in the race, dropped its plans to directly bid for Mercks Generics.