This story is from April 17, 2007

Generics biz of Merck to cost winner over $6b

Swati Bharadwaj-Chand & Nimish Shukla / TNN / Apr 17, 2007, 01:03 IST

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It's emerging that the big ticket acquisition could cost the winning bidder over $6 billion.

Generics biz of Merck to cost winner over $6b

AHMEDABAD: With the bid for German pharma giant Merck's generics business now entering the final lap with the due diligence reaching a crucial stage, it's emerging that the big ticket acquisition could cost the winning bidder over $6 billion.
According to sources, the final binding bids are to be submitted by the end of this month, finally bringing the curtains down on one of the most closely watched deals in the pharma space in recent times, especially as far as the Indian pharma sector goes.
The battle royale may be a close contest between Ahmedabad-based Torrent Pharmaceuticals Ltd and Iceland's Actavis, sources familiar with the situation said.
The other player understood to be in the fray is Israeli pharma giant Teva Pharmaceuticals. But sources say the fact that Teva already has a strong presence in markets like US, Canada, Europe and Australia, where Merck has a strong generic business, and may not find such a high valuation attractive.

For players like Torrent and Actavis, who have a limited or negligible presence in these highly regulated markets, the high price may well be worth the while for it will give them an instant access to these lucrative markets.
Merck's generic business includes operations in Brazil, Belgium, Italy, the Netherlands, Spain, and UK, and also Alphapharm in Australia, Genpharm in Canada, Merck Dura in Germany, Scandharm in Sweden and Dey in the US.

But why should two mid-sized players consider paying such a high price for a business that has a turnover of only $2.2 billion?
The high valuations for Merck's generics business stem from the fact that it has profit margins as high as 8-10 per cent, which is quite high for the otherwise low margin generics space, sources explain.
For Torrent, which is ranked 12th in the Indian pharma industry, clinching this deal would mean an entry into the top 10 global generic arena, ahead of biggies like Ranbaxy and Dr Reddy's who have a strong presence in the global generic industry.

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