Solrex buys buoy Orchid

The share price of Orchid soared 15.83% on the BSE.

The share price of Chennai-based Orchid Chemicals and Pharmaceuticals soared 15.83 per cent on the Bombay Stock Exchange today on reports of a possible takeover bid by Solrex Pharmaceuticals, a company believed to be controlled by the promoters of Indian pharma major Ranbaxy.

There were unconfirmed reports today of Solrex scaling up its stake in Orchid to 12.87 per cent from 9.54 per cent yesterday.

Orchid shares closed at Rs 239.95 against Rs 207.15 on Monday but the Ranbaxy scrip fell 2.71 per cent to close at Rs 470.75.

Ranbaxy refused to comment on the development and an Orchid spokesperson said, "We will not comment on speculation and are yet to get details on the bulk share purchaser."

Solrex, which had a 4.62 per cent stake in Orchid earlier, bought 2.26 million shares on Friday, and 972,000 shares on Monday to increase its stake to 9.54 per cent.

The promoters of Orchid only hold 15.87 per cent, according to the latest available shareholding data. If Solrex crosses the 15 per cent threshold, it can make an open offer for a takeover under Sebi norms. The open offer will have to be made at Rs 236.34, Orchid's average share price for the last six months.

Around a dozen institutional investors hold about 38 per cent in the company, Macquarie Bank Ltd (5.13 per cent), Life Insurance Corporation of India (4.91 per cent) and Harpline Ltd (4.54) among them. Orchid is banking on their support to counter the takeover attempt.

Orchid also has a $200 million Foreign Currency Convertible Bond (FCCB) issue that can be converted into shares, said sources.

Sources at financial institutions said they will adopt a wait-and-watch strategy. "Orchid Pharma has not written to us yet and we need time to study the whole thing. We need to see what value addition Ranbaxy will bring, what impact the takeover will have on our investments," a source said.

"It is an insignificant thing for us. We have investments in several companies. When the time comes, we will decide. So far no one has written to us," added another institutional shareholder.

A source close to the Ranbaxy management said Solrex was a personal family investment arm of the Ranbaxy promoter family and the investment in Orchid was more of a personal investment than a takeover attempt. But few are willing to buy that argument.

Religare, a Ranbaxy promoter group company that had sold its shares in Orchid recently, distanced itself from Solrex. "We have no connections with Solrex. Any information linking Religare to Solrex is incorrect," the company's CEO and Managing Director Sunil Godhwani said.

"It is definitely a hostile takeover attempt by Solrex. Orchid is a good company to buy and whoever takes over will be having management control of a Rs 2,400-crore company," an industry expert commented.

Added Sarabjit Kaur Nagra, a pharmaceutical analyst with Angel Broking, "Orchid has made significant investments in world-class bulk drug manufacturing facilities in the last three years and it is emerging as a major player in the cephalosporin anti-bacterials and non-cephalosporin antibiotic products. This will help Ranbaxy access the strengths of Orchid, especially in the US and European markets."

The 16-year-old Orchid has two manufacturing sites for active pharmaceutical ingredients (APIs) at Alathur near Chennai and at Aurangabad near Mumbai and three manufacturing sites for dosage forms at Irungattukottai and Alathur in Chennai. It also has two research and development centres at Sholinganallur and Irungattukottai near Chennai.