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Wednesday, November 21, 2012

Cipla Set to Pop S Africa’s Medpro in $220-M Deal

Indian co picks up 51% stake, valuing South Africa's third-largest drugmaker at $440 m


    Cipla, India's second-largest drug firm, has agreed to acquire South African drugmaker Cipla Medpro, taking an important step towards consolidating its international business that now makes up more than half its quarterly revenues. Cipla said on Wednesday it will buy 51% of Cipla Medpro for about $220 million, valuing the beleaguered South African company at about $440 million. This is Cipla's first international acquisition in its 75-year-old history. "With this acquisition, South Africa will become the second-largest drug market for Cipla, which hopes to capture 5% of the market," said YK Hamied, chairman and managing director, Cipla. "Going forward it will be a priority market for us, why should we leave it to the Chinese," Hamied said. 
The acquisition will be a relief for Cipla Medpro and its shareholders, coming just months after its CEO Jerome Smith was suspended in August. Smith founded the company in 1993 and later forged a relationship with India's Cipla, which changed the fortunes of the South African company. Medpro used to source 80% of its products from Cipla, and the companies agreed Medpro would use the brand name of Cipla for selling products in Africa. Smith's abrupt departure led to uncertainty over the firm's future, but on Wednesday the shares rose after the Cipla announcement. Cipla is offering ZAR 8.55 per share (payable ex the final dividend for the 2012 financial year, which will be capped at a maximum of ZAR 0.10 per share). Medpro shares rose 7% to ZAR 8.29 from 7.10 ZAR at the Jo
hannesburg stock exchange. Cipla shares rose 2% to end at . 389.70 on Wednesday after the announcement. 
Cipla has been consolidating its position as India's second-biggest drugmak
er. In the past three years, its revenues have grown 41.53%, while the Indian drug market, estimated at about . 60,000 crore, has been growing at about 15%. Medpro is South Africa's third-biggest drugmaker with annual sales of . 1,000 crore. The South African market is estimated at about $4 billion, and comprises about 35% of the total African market. Cipla to Get Access to New Segments 
The acquisition will give Cipla a presence in respiratory drugs and those needed to combat illnesses of the central nervous system. "Till date, Cipla only had a profit-sharing agreement with Medpro, as the company would source all its products from Cipla, so this deal is a valid extension of that partnership," said Surjit Pal, analyst with Elara Capital. 
Cipla announced after its last quarter financial results that the company's future will be the international markets, a reflec
tion of this is the contribution of international business to its revenues. In the last quarter, it was 56% of the total business. Hamied said the company wanted to expand in all regions and categories such as malnutrition and pediatric products.




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