Introduction

Post-recession when the world was going through an economic turmoil, Abbott Laboratories USA, posted an increase in net income by 28%, between 2007 and 2009. However it did sense that in order to continue its growth cycle, it needs to expand to new markets. Though the world economy had taken a back seat, for few countries, especially the Emerging markets, the things were not that bad.

India, one of the leading emerging markets, had had a marginal impact from global recession. Just as, did the entire world looked up to India, so did Abbott Industries. With US pharmaceutical market almost at a saturation stage, this pharma giant saw India as an opportunity where the company had an immense opportunity to grow. With this vision it was looking for opportunities to enter India, either via mean of acquisition or through some strategic alliance with Indian Pharma Company.

On the other hand Indian pharma companies were at an early growth stage of their business cycle. With new investments being made immensely in R&D, this was majorly being financed through debt. Indian market also was an exponential increase in patents coming their way due to these R&D initiatives. At the same time there were many small and medium size pharma spanning up across the country, who were finding it difficult to un-tap their talents.

Piramal Healthcare, a fully owned division of Piramal Enterprises, had grown mostly inorganically, acquiring 15 companies since 1988. However due to heavy debt it was unable to support its R&D, which is major source of potential revenues. On May 21, 2010, the management of Piramal Healthcare declared the execution of definitive agreements with Abbott Lab for sale of its Formulation Business to this US firm. Though there were some concerns raised by a few sections of stakeholders over the deal between the two, the decision of Piramal Healthcare to sell the Formulation Business at a high valuation was widely appreciated.

Abbott Laboratories – Company ProfileAbbott Laboratories is an American pharmaceuticals and health care products company operating in over 130 countries. The company headquarters are in Abbott Park, North Chicago, Illinois.

International expansion began in 1931 when Abbott formed its first international office in Montreal, Canada.  Expansion continued in 1962 when Abbott entered Japan, England, France and Italy. With all these developments abroad, Abbott adopted an International Division Structure. Under this organization of management, Abbott added another division to the three product based divisions to be responsible for all foreign operations. This international division is itself divided regionally, with each country reporting to the international management.

The company split into three main divisions based on their products: pharmaceuticals, hospital products and nutritional products. The main areas of its operation are; Animal Health, Diabetic Health, Diagnosis, Molecular, Nutrition and Vascular.

Piramal HealthCare – Company ProfilePiramal entered the pharmaceutical sector in 1988. Today, their services comprise pharma solutions, critical care, consumer products and lab-diagnostics. Piramal Healthcare contributes to over 90 percent of the company’s revenues. The Critical Care division of the Piramal Group is one of the three players globally in Inhalation anesthetics.

It provides all the currently used gases— Halothane, Isoflurane, Enflurane, Sevoflurane and Desflurane. The product portfolio also includes Intravenous Anesthetics like Propofol, Regional Anesthetics like Bupivacaine, Muscle Relaxants like Atracurium and Plasma Volume Expanders like Polygeline. The brand portfolio under the OTC division includes Lacto calamine, I products (i-pill, i-sure, i-can), Saridon, Supractive Complete, Polycrol, Tri-active, Itchmosol, Jungle Magic etc. The division currently services 400,000 chemists and general stores.[3] The pharma solution business unit have assets across North America, Europe and Asia. It offers services across the entire drug life cycle – from development and commercial manufacturing to off-patent supplies.

Overview of the deal

Under this deal, the formulations Business, which deals in research, product development, drug formulation, manufacture, distribution & sale/marketing, import and export of generic pharmaceutical products in finished form, shall be transferred to Abbott Healthcare India Pvt. Limited(AHPL, a fully owned subsidiary of Abbott International), as a going concern. The above business transfer will involve the transfer of all the assets and liabilities of the current business, excluding cash and cash equivalents and any liability relating to indebtedness of the Company, taxes, employee and retirement claims, environmental or legal claims and any actual or potential litigation.

The deal is being undertaken for an all cash consideration of $ 3.72 billion. Of the $ 3.72 billion, $ 2.12 billion would be payable by AHPL to Piramal Healthcare on closing of the sale and a further $ 400 million is payable at the end of each financial year, commencing in 2011.

As per the Business Transfer Agreement, Piramal Enterprises or its affiliates are prohibited from engaging in business competing with the Formulation Business, either in India or in emerging markets for a period of eight years from the date of closing of the Business Transfer. Furthermost the above are also prohibited from owning an interest in, managing, operating, controlling, lending money or rendering consultation, as a partner, stockholder, or otherwise, with any person that is engaged in competing business either in India or in any Emerging Market. However this restriction does not extend to investment in shares of listed companies carrying on competing business, provided that such investment does not exceed 5% of the paid up capital and such an investment is not accompanied by acquisition of control or influence in the listed entity.

Abbott Lab., USA

Abbott HealthCare Pvt. Ltd (India)

100%

USA

India

Piramal Group

Piramal Healthcare Pvt. Ltd.

Public Shareholders

47.9%

52.10%

Cash $3.72B

Business Transfer – May 21, 2010

What did Piramal Sell? Domestic formulations business 350 brands with a Rs 2,000-crore turnover 5,500 employees Manufacturing units in Baddi (HP)

What remains unsold?

Assets with a turnover of Rs 1,700 crore 11 manufacturing units in four countries Contract manufacturing business Critical care business Bulk drug supply business  Vitamins  Fine chemicals Diagnostics and drug discovery 

What remains as a part of Piramal Enterprises?

Glass Private equity Real estate Research Lab (Sold in 2015)

What did Abbott gain?

Abbott Lab, had been facing the pressure of its bigger rivals in the international markets. Back then it ranked eighth in the global pharmaceutical rankings with revenues of USD 30.7 billion in 2009, which is about half of industry leader Johnson & Johnson's revenues of USD 61.8 billion for the same year. In terms of size, scale and scope, Abbott Lab is smaller as compared to other global pharmaceutical majors. Acquisition of Piramal’s Formulation Business is expected to give Abbott Lab a better penetration into the emerging markets and likely to give it an edge over its mighty competitors.

Further, just 10 days before the acquisition of the Formulation Business, Abbott Lab announced a licensing and supply deal with Indian pharmaceutical company Zydus Cadila. This deal allowed Abbott Lab to commercialize two dozen Zydus Cadila drugs in 15 emerging markets. The collaboration included medicines for pain, cancer and cardiovascular, neurological and respiratory diseases, with product launched in early 2012.

This deal offered Abbott Lab a combined 7% market share in the Indian generic market and makes Abbott Lab the single largest player in the Indian pharmaceutical sector. Further, the deal provided Abbott Lab, the much required access to other emerging markets.

Status post deal

Abbott India

PIRAMAL

Abbott India

PIRAMAL ENT

Abbott India

PIRAMAL ENT

Abbott India

PIRAMAL ENT

Abbott India

PIRAMAL ENT

Abbott India

PIRAMAL ENT