Dr Reddy's to buy betapharm

Largest overseas buy by Indian firm at Rs 2,688 cr.

Hyderabad-based Dr Reddy's Laboratories today announced it had entered into an agreement with Europe's leading private equity house 3i to acquire German generic drug maker betapharm for an enterprise value of ¤480 million (approximately, Rs 2,688 crore) in cash.

The acquisition, the largest by an Indian company in the overseas market, came after Dr Reddy's outbid the country's largest drug maker, Ranbaxy.

Israeli major Teva and German giant Sanofi-Aventis were also in the fray at the initial stage.

Dr Reddy's will fund the acquisition using a combination of internal cash reserves and committed credit facilities.

Chairman Anji Reddy said the acquisition was aimed at Dr Reddy's becoming "a mid-sized global pharmaceuticals company with strong presence in all key pharmaceuticals markets".

He added that betapharm had created a strong growth platform and was well positioned for the future. "We are looking forward to partner with betapharm in building a strategic presence in Europe," he said.

The acquisition pushed Dr Reddy's stock to a 52-week high at Rs 1,295 on the Bombay Stock Exchange (BSE) today. The stock finally closed at Rs 1,281.95 on the BSE, 9.38 per cent higher than yesterday's close of Rs 1,172.05.

The acquisition will add about $200 million to Dr Reddy's revenue immediately, Chief Executive GV Prasad told Business Standard. The transaction is likely to close in the first week of March. Details on financial terms and conditions of the transaction will not be disclosed.

Rothschild acted as financial adviser and Freshfields Bruckhaus Deringer was Dr Reddy's legal counsel in this transaction.

The acquisition impacted the share price movement of Ranbaxy too. Ranbaxy shares fell 3.31 per cent to close at Rs 431.85 against yesterday's close of Rs 1,172.05.

Ranbaxy today said it did not wish to bid more than the "optimal valuation" for betapharm.

"We bid till the point of what we considered was the optimal valuation. There were some terms and conditions against our shareholders' interests and we did not want to accept them," said Malvinder M Singh, Ranbaxy's chief executive officer.

Some pharmaceuticals industry executives said anything beyond Euro 400 million was stretched. "The high valuation has put the payback period to 15 years when the foreseeable time horizon is not beyond 4-5 years," said one.

Founded in 1993, betapharm is the fourth largest generic drug company in Germany with a market share of 3.5 per cent. It markets high-quality generic drugs, focusing on long-term therapy products with high prescription rates and is the fastest growing generics company over the past 5 years.

"Germany is the second largest generics market in the world, after the US, and it does not have the intense price pressure we have been seeing in the US and UK markets," Prasad said.

Wolfgang Niedermaier, betapharm's CEO, said, "Dr Reddy's impressive pipeline of generic and innovative products and its high quality standards combined with competitive manufacturing infrastructure will help further develop our position in the German market and offer an entry platform for the European market."