Merger & Acquisition

Group Members
BENSON VARGHESE - 19
SARITA SAPALIGA

- 29 DHANANJAY JOSHI - 43 ANIL NAIR - 80

Indian Pharmaceutical Industry

3rd largest in the world in terms of volume and ranks 13th in

terms of value Industry is growing 14% p.a Industry size - US $12.6 billion India as an emerging market
Expansion of medical infrastructure

Top pharma companies Ranbaxy Lab Dr, Reddys Lab Aurobindo Pharmaceutical GSK India Cipla

M&A Deals in Pharma Industry

Year June 2008 Target Company Ranbaxy Lab Acquirer company Daiichi Sankyo Co Ltd Deal Value ($mn) 4538.6

August 2006
July 2009 Dec 2009 May 2010

Matrix Lab Ltd.

Shantha Biotech Orchid chemical

Mylan Inc
Sanofi Aventis Hospira Inc

530
625.2 400 3720

Piramal Healthcare Abbott Lab.

PIRAMAL HEALTHCARE LTD.

Initially known as Nicholas Piramal India Ltd, 1988
One of the top 10 custom manufacturing Pharma

companies in India, Europe and North America. 350 branded generic products One of largest formulation plant in india Consolidated revenues of US$450million in FY2012

ABBOTT
Founded in 1888 by young Chicago Doctor, Wallace C.

Abbott 90000 + people were employed over 130 countries Abbott revenue - US $38.85 Billion Market leading pharmaceuticals with advanced medical products Abbott India In 1910 Abbott established its presence in India Abbott Healthcare Pvt. Ltd. Established on 1st January , 1997

Growing Footprints in India?

Emerging markets already represents over 20% of its

total business. Abbott has been operating in India for 100 of its 122 years, and had several popular pharmaceutical brands. Abbot was languishing at 18, with 2.3 per cent market share and Solvay was at 35th position in the formulation sales pecking order. Emerging markets will grow by 14% to 17% between now and 2014, compared with 3% to 6% in developed markets

Initial Attempts by Abbott

The company had agreed to buy Wockhardts nutrition

business for Rs 620 crore before legal problems stalled the deal. It entered into a licensing agreement with Zydus Cadila to market 24 products in 15 emerging markets, with an option to add another 40.

Initial M&A Attempts on Piramal

Rumours in May 2010 about Pfizer buying 51% in

Piramal 30% stake from the promoters and an open offer for the remaining 21%. Priced Rs 725-727 per share. Deal size - USD 1.8-1.9 billion.

Initial M&A Attempts on Piramal

Only two days before Abbott-Piramal deal

annoucement, Bombay Stock Exchange asked the promoter to clarify on media reports that Pfizer might buy a controlling stake in Piramal Healthcare Limited.
Piramal Healthcare had responded "We hereby

confirm that there is no proposal by the Promoter for selling any stake in the Company."

M&A Deal
Year Indian Player MNC Nature of deal Detail 2010 Piramal Healthcare Ltd. Abbott Healthcare Pvt. Ltd. Slump Sale - Piramals domestic branded formulation division -350 brands - 5,200 employees - Manufacturing factory at Himachal Pradesh

Abbott Laboratories, USA

Piramal Group (Promoter Group)

100%

52.1% CASH USD 3.72bn Piramal Healthcare Ltd. Public Shareholders

Abott Healthcare Pvt. Ltd.

47.9%

Business Transfer Formulation Business

Reasons buy :- Deal for Why did Abbott

Abbott is following a Emerging market penetration

strategy. Near saturation of the western market is bringing MNCs to India. New diversified business model of spreading its risk from cash-intensive, R&D-based, innovator drugs to the robust cash flow-generating branded generics Expand presence in high growth emerging market Biggest player in India with 7% market share

Reason for Deal

Why did Piramal sell : 45% of the business stays with Piramal Healthcare Money thats now coming can be used to retire some Rs 1,300 crores in debt It will also provide funds for expanding the existing businesses and for undertaking new businesses

Piramal Health Care

Year Ended

Operating Income Break Up Healthcare Solutions Pharma Solutions Piramal Critical Care Piramal Diagnostic Services Limited Others Total

% of Sales 54.50 24.1 8.9 5.6 6.9 100

31-Mar-10 20,002.30 8,849.90 3,276.70 2,064.30 2,517.40 36,710.50

31-Mar-09 % Growth 16,048.90 24.6 10,606.50 -16.6 1,316.00 149 1,689.60 22.2 3,150.10 -20.1 32,811.00 11.9

Operating Income Break Up Pharma Solutions Piramal Critical Care Piramal Diagnostic Services Limited Others Investment Income Total

% of Sales 50.8 19.3 9.7 3.4 16.70 100

Year Ended 31-Mar-11 31-Mar-10 % Growth 10,205.80 9,393.60 8.6 3,876.80 3,276.70 18.3 1,958.40 1,770.40 10.6 687.90 500.10 37.6 3,358.30 921.70 264.4 20,087.2 15,862.50 26.6

Deal Structure
8x Sales 30x EBITDA

USD 3.72 billion

Long term Capital Gains Rs 3800 cr

USD 2.12 billion Upfront payment

Installment payment (USD 400 million each for next 4 years)

- Not contingent upon any event taking place. - Not guaranteed by any bank

Dad + Daughter - Bankers = $3.7 Billion Deal

Particulars

Amount

Initial

$2.12 billion

Receivable after Present value factor (at the rate of 8.75 per cent discount rate) 6 months 0.958

Present Value

$1.216 billion payment net of LTCGT and payment to sister

1st Instalment

$400 million

18 months

0.881

$354.8 million of Deferred Payment

$324 million of Deferred Payment $298 sales andmillion of 22x Deferred Payment $274 million of Deferred Payment $2.4668billion

2nd Instalment

$400 million

30 months

0.810

3rd Instalment

$400 million 42 months 0.745 5.5x Sales and 20x EBITDA as against 4x

EBITDA
4th Instalment $400 million 54 months 0.685

Total

Reasons for High Valuation

The domestic branded generic business most

profitable segment for Indian firms Piramal's business - 25% CAGR in the past two years Fifth largest player in the Indian market. Non-compete covenant for eight years The trick was perhaps in choosing a buyer who was desperate to have a bigger say in the domestic Indian market

45% business stay

Retirement of Rs 1300 debt

Reasons for Slump Sale

Fund existing Business and new businesses

Debt-Equity ratio = 0.77 Some loans were secured against assets which were being sold off

Special Dvidend

Markets Reaction

Demerger An alternative?

Current Scenario Post merger effects

57% decline in sales 2012 2011 2010 2009 2008

Sales Turnover Excise Duty

Net Sales Other Income Stock Adjustments Total Income

1,174.00
21.29 1,152.71 203.48 13.28 1,369.47

1,619.74
29.61 1,590.13 16,684.49 69.00 18,343.62

2,711.74
57.24 2,654.50 133.30 21.44 2,809.24

2,386.95
65.04 2,321.91 71.57 12.35 2,405.83

2,001.26
83.55 1,917.71 74.83 -4.13 1,988.4

Mar '12 Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 34.51 34.51 0.00

Mar '11 33.58 33.58 0.00

Mar '10 41.80 41.80 0.00

Mar '09 41.80 41.80 0.00

Mar '08 41.80 41.80 0.00

0.00
11,106.27 0.00 11,140.78 225.45 966.67 1,192.12

0.00
11,664.93 0.00 11,698.51 197.07 89.20 286.27

0.00
1,458.83 0.00 1,500.63 406.53 254.43 660.96

0.00
1,147.22 0.00 1,189.02 448.01 528.85 976.86

0.00
974.67 0.00 1,016.47 151.17 353.12 504.29

12,332.90

11,984.78

2,161.59

2,165.88

1,520.76

Abbott The Way Ahead

Synergies
Regime for generics to be bioequivalent Cultural challenges

Piramal The Way Ahead

A company with a large market capitalization
Cash in excess of its market value Other assets having substantial future value Piramals management

Thank You.