India’s Ranbaxy has thrown its hat into the ring as potential buyers for Merck KGaA of Germany’s generics unit are starting to prepare to make their bids.
Companies are normally quite coy about expressing their desire to make an acquisition but this reticence would not appear to be shared by Ranbaxy, whose chief executive Malvinder Singh said of the Merck division: “It's a quality asset. We are interested." Merck confirmed at the end of last week that it was evaluating the possibility of selling its generics operations which posted sales of 1.8 billion euros in 2005 and operating profits of 238 million euros.
That Ranbaxy is interested should come as little surprise, given that the firm has never shied away from revealing its intentions to become a global player in the generics market. It paid some $70 million last month to buy South African pharmaceutical firm Be-Tabs Pharmaceuticals and last year saw the company go on a major acquisitions spree in Europe, most notably a $324 million purchase of Romania's Terapia in March, GlaxoSmithKline's generics units in Italy and Spain and Ethimed in Belgium.
Deal would strain firm's finances
Acquiring the Merck unit would put Ranbaxy in third place after Teva and Novartis in the world generics market, and give it a much-increased presence in North America, but a possible stumbling block to any deal could be price. Some analysts believe that it may take bids of some 5 billion euros to tempt Merck to sell and Ranbaxy’s turnover is only around the $1 billion mark. Mr Singh told The Economic Times of India that it is premature to start talking about funding right now, but did note that any package may be a combination of debt, stock and private equity.
Any purchase would put a strain on Ranbaxy’s balance sheet but, as a senior analyst with HDFC Securities told the newspaper, while the company will have to pay the interest from day one, the benefits of integration will start flowing in only after a couple of years.
Ranbaxy will not be alone in trying to woo Merck and the usual suspects are already being lined up as possible bidders. Teva, Novartis and Watson have all been mentioned as has, rather less likely, Sanofi-Aventis.