M&A Case Study :3

ABBOTT -PIRAMAL

Case study : Abbott- Piramal

Can you give a brief outline of
the case?

M&A Case study 3 : Abbott- Piramal

Page 4:The deal in brief : On May 21, 2010,
Piramal Healthcare declared the execution of
definitive agreements with Abbott Lab for sale of
its formulation business to Abbot Healthcare Pvt
Ltd ( AHPL) for total consideration of US$ 3.72
billion (9.4 times its sales) as a slump sale. The
assets transferred included Piramal Health cares
manufacturing facilities at Baddi, Himachal
Pradesh and rights of approximately 350 brands
and trademarks and employees of the formulation
business. The deal offers Abbot lab a combined
market share of 7% in generic market.

Abbott Piramal
Who were the parties involved
in the deal?

M&A Case study 3: AbbotPiramal

Parties Involved:
Acquirers:
Abbott Laboratories, USA : incorporated in the state
of Illinois, US on March 6,1900, listed on New York ,
Chicago, London and Swiss stock exchanges. Abbott
Lab is into discovery, development, manufacture and
sale of broad line of health care products.
Abbott Healthcare Pvt Ltd : Incorporated in India as
wholly owned subsidiary of Abbott Lab and is into
manufacture and sale of allopathic pharmaceutical
preparations, sale of chemicals, scientific, medical and
surgical equipments and nutritional products.

M&A Case study 3: AbbottPiramal

Sellers :
Piramal Health care Ltd :
Public limited company listed on BSE/
NSE. Promoter holding in the co is
52.10%
Piramal Enterprises Ltd :
Affiliate of Piramal Health care,
engaged in textiles, health care,
glass containers and engineering
businesses.

Case study : Abbott- Piramal

How was the deal structured?

M&A Case study :3 Abbott - Piramal

Structure of the Deal : Page 6:
See Transparency.
Transaction has been structured as slump sale u/s
293 (1)(a) of companies Act by way of Business
Transfer Agreement.
Under the deal, the formulations business which is
engaged in research, development, formulation,
manufacture, sale, marketing, distribution, import and
export of generic pharmaceutical products in finished
form shall be transferred to Abbott Health care Pvt
Ltd as a going concern by transfer of all the assets
and liabilities excluding cash and cash equivalents.

Case Study : Abbott-Piramal

What was the consideration and
how it was arrived at?

M&A Case study : Abbott- Piramal

Consideration : All cash deal for US$3.72 billion ( INR 175
Billion).
Out of this, US$ 2.12 billion to be paid on closing the deal and
The balance amount is payable in four annual installments of US $
400 million each.
Piramals are prohibited from engaging in formulation business for a
period of 8 years in India or in any emerging market ( Non Compete
clause) This restriction does not apply to investment in shares of
companies in competing business provided it does not exceed 5% of
paid up capital of investee company.
Piramal enterprises to give guarantee for compliance of obligations of
the agreement.
For this guarantee, Piramal Health care to pay Piramal Enterprises, an
aggregate of INR 3500/- MILLION (US$ 75 million ) representing 2% of
consideration received by Piramal Health care on closing of the deal.

Case study : Abbott -Piramal

How does this become a coveted
deal for Abbott?
What are the benefits to Piramal
?

M&A Case study : AbbottPiramal

Commercial considerations:
Two questions : What makes formulation
business a coveted acquisition for Abbott ?
How is the deal beneficial to Piramal?
From Abbotts angle: As a part of strategy, Abbott
wanted to move beyond the proprietary or patented
drug business.
Competitive pressures : In Global market Abbott
is ranked eighth, with revenues of US$30.7 billion
( IN 2009), whereas industry leader Johnson &
Johnson with revenues of US$ 61.8 billion ranks first.

M&A case study : AbbottPiramal

Emerging markets : Future growth drivers :
It is expected that with saturation of growth in western
markets, emerging markets offer a significant portion
of future growth in pharma industry. It is reported that
Indian pharma inds has been witnessing significant
growth in recent years and by 2015, it is expected to
reach us$20 billion, and become one of the top 10
pharma markets, overtaking brazil, Mexico, South
korea and Turkey. The huge domestic market coupled
with low cost research and manufacturing capabilities
has resulted in these local pharma companies being
targets of global MNCs.

M&A Case study : AbbottPiramal

Formulation Business of Piramal Health
care :During the year ended 31st March 2010,
Formulation Business of Piramal reported sales
of INR20 billion (US$425 Million) registering a
growth of 24%. Ranked third in pharma inds by
ORG IMS. Ranked first in pharma inds for
growth of sales from New Products.
Pursuant to the deal Abbott would get mfg
facilities at Baddi (H.P.), 350 brands and 5000
employees large sales force, 7% market
share.

M&A Case study : Abbott

-Piramal
How deal is beneficial to PIRAMAL :
Formulation business of Piramal was valued at
9.4 times sales for FY fy2010, approx Rs.
17500 cr. ( us$3.72 billion).
Cash pool is generated by the co and not to be
paid to shareholders in this transaction. This
cash is expected to be utilised for repayment
of debts, more investments in R&D, increase
the value of new business and/or venture into
new businesses in the years to come.

M&A Case study : AbbottPiramal

The company will continue custom manufacturing
( both API and formulations) for third parties,
critical care , over the counter consumer products,
manufacture and sale of active pharma ingredients,
vitamins and fine chemicals, diagnostic and
medical devices, novel drug discovery and research
through its affiliate, Piramal life Sciences.
It is expected that the critical care business in
which Piramal is already no 3 in Global anaesthtics
market and contract manufacturing business would
be the next big growth centre for the company in
time to come.

Case study : Piramal- Abbott

What were the legal and
regulatory issues?

M&A Case study ; Abbott

-Piramal
Companies Act : Who should approve the
Business Transfer?
Sec. 293(1)(a) of Companies Act requires every
company to obtain approval of its shareholders to
undertake sale of whole or substantial part of the
business approval to be obtained by simple
majority.
Listed cos can obtain such approvals by postal ballot
and it is not necessary to hold meeting of
shareholders.
Unlike sec.391-394 for M&A transactions, it
does not require High Court approval.

M&A Case study : Abbott

-Piramal
Companies Act: Can Promoters participate in a
resolution approving business transfer?
Though interested directors are prohibited from
voting at Board Meeting, there are no restrictions on
their voting at general meeting.
Piramals however obtained overwhelming majority
including majority of total non promoter holding.
Is it mandatory to seek approval of Creditors ?
While it is not mandatory to seek approval of
majority of creditors( unlike sec.391-94), it will
depend on loan agreement signed by the company.

M&A Case study : Abbott

-Piramal
Income Tax Act : Demerger v/s Slump Sale
(Business Transfer) :
Demerger offers following tax benefits:
Capital Gains : No capital Gains on transfer of
capital assets from demerged co to resultant co
as such transaction is not regarded as transfer
for the purpose of capital gains.
Carry forward and set off of losses : Carry
forward or transfer of accumulated losses
transferred from demerged co is available to
resultant co.

M&A Case study : AbbottPiramal

Business Transfer/ Slump Sale :
Slump sale is not tax efficient and
transfer of assets from transferor to
transferee could be subject to capital gains
if there is gain to transferor : Short Term /
Long term.
In this transaction long term capital gains
@20% was applicable ( Tax liability approx
Rs.3800 crores to be paid from the initial
tranche of us$2.2 million Rs.10000 crores)

M&A Case study : AbbottPiramal

Contract Act/Patents Act : How will
Piramal transfer IP Rights?
Agreement to include Transfer of IPR.
Common form : Assignment of such rights
between the parties and it is recognised by
Patent act. But requirements are:
Such assignment to be writing with all terms
and conditions
Registration: Application by assignee
within 6 months

Case Stdy : Abbott-Piramal

Does Abbott require license to
carry on formulation business? :
The rules under Drugs &Cosmetics
Act 1940, every drug manufacturer
need to obtain license from the
prescribed concerned.
Transfer of assignment right does
not amount to transfer of license.

M&A Case study ; AbbottPiramal

Non compete provisions: These

prohibit Piramals
As per mutual agreement under
Contract Act
Sec.27 of Contract Act.

Case study: Abbott- Piramal

Slump Sale V/s Demerger :
Was demerger not an
appropriate alternative?

Case study: Abbott -Piramal

Slump sale v/s Demerger :
Demerger as an alternative :
The entire formulation business can be
demerged from Piramal Healthcare and
transferred as a going concern into eirther AHPL
or a new company floated by AHPL or Abbott
lab.
Such a demerger would require approval of
shareholders and creditors of both demerged
and resultant companies and would also require
approval of High Court.

Case study : Abbott-Piramal

It would require issue of shares to all the
shareholders of Piramal Healthcare based
on predetermined valuation.
Though issue of shares pursuant to
scheme of re arrangement under sec.391394 is exempt from SBI Take over code,
payment of consideration by ABBOTT
would have gone to shareholders of
Piramal Healthcare and would not have
come to Piramal Healthcare as company.

Case study : Abbott Piramal

What next?
What would you have preferred
Slump Sale or Demerger and
Why?
Analyse post deal financial
position of Piramal
Has it gained or destroyed value
for its shareholder?