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Drdutta's review
Investment Sector: Emerging Markets Submitted by Drdutta 
3 months ago Add Tag |
After days of speculation and denials , Ranbaxy Laboratories and Orchid chemicals finally announced an alliance "involving multiple geographies and therapies for both finished dosage formulations and active pharmaceutical ingredients." But what does this agreement actually mean on the ground?
In my opinion, deal unites Orchid’s manufacturing capabilities in Cephalosporins (a new generation of antibiotics) and Carbapenems (antibiotics administered intravenously in hospitals for serious infections) with Ranbaxy’s marketing prowess and wide geographical reach.
Orchid has FDA certified manufacturing plants in addition to a wide range of product offerings in Cephalosporins and Carbapenems, but it lacks the front-end to market them. This is exactly where Ranbaxy scores—over the years, it has invested heavily to build a marketing and distribution network across geographies. This is why the alliance is good for both firms.
But can this alliance lead to a full-fledged acquisition by Ranbaxy? After all, Orchid’s promoters hold only a 22.7% stake of the company’s 65.8 million shares—the rest is held by corporate bodies (49.9%) and the public (27.4%). Moreover, Ranbaxy recently bought a 14% stake in the Chennai-based firm through its group company Solrex. A push beyond 15% will trigger the open offer clause (to acquire another 20% from existing shareholders), which would mean an additional outgo of Rs 309 crore at Orchid’s prevailing stock price of Rs 235.
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