Aurobindo gets ready to play with the big boys

Plans to sell shares to fund acquisition of Teva’s Europe assets if its bid is approved

Hyderabad-based Aurobindo Pharmaceuticals is planning to raise funds via a share sale to fund the acquisition of Israel-based Teva Pharmaceutical’s European assets, if its bid is accepted by this month.

The company is in a race with two other multinationals for the acquisition. Good profits and a near-doubling of its market value has given the company a confidence booster for the acquisition. Which could cost it as much as $1.3 billion (~8,700 crore). For the promoters of Aurobindo, it might become a bit difficult to keep their characteristic low profile intact towards the end of this month if they win the race. To prepare the ground, the board of directors had cleared its proposal to raise $600 million (~4,000 crore), to fund growth and also use a portion of it for retiring some debt.

Till date, Aurobindo was happy with small-sized acquisitions. The value of its largest one so far was $132.5 mn, an auction sale of US-based nutraceutical Natrol, a year before.

In January 2014, it had paid 30 million (~250 crore) for the loss-making commercial operations in seven western European countries from Irish pharma company Actavis Plc. It was able to quickly this entity around, creating the conditions to think of a big deal. The Actavis step had put Aurobindo among the top 10 in Europe — it acquired personnel, commercial infrastructure, products, marketing authorisation and dossier licence rights in seven countries. Both have also entered into long-term commercial and supply arrangements. Europe is the second biggest market for Aurobindo, accounting for 28 per cent of its global formulations business.

Teva Pharmaceutical Industries’ offer to divest overlapping assets in the UK, Ireland and Iceland — a precondition for acquisition of Allergan Plc's generics business, put by the European authorities — comes as Aurobindo’s oral solid finished dosage facility at Naidupet in Andhra Pradesh was getting ready for commissioning. The facility was being exclusively set up to make products acquired from Actavis, as the com- pany seeks to shift the manufacturing to the lower cost Indian base.

“The company might see an upside of ~500 crore in top line once the Naidupet facility begins operations in the next threefour months,” sources said. On top of the business anticipated from this facility, the spare capacity here and at other units are another reason to bid for Teva’s products.

Aurobindo last year said it was spending ~900 crore on capacity addition — it plans to make India a key sourcing hub for its western European generics drug business. Besides at Naidupet, the company is setting up a finished dosage facility for European markets at Visakhapatnam in Andhra.

“There are five-six contenders in the fray. By the end of this month, we might get to know which way the deal would go,” a top company official told Business Standard , on condition of anonymity.

P V Ramaprasad Reddy and wife P Suneela Rani together hold 70 per cent of the promoter's and promoter group’s shareholding in the company. Currently Aurobindo is the fourth-largest Indian generic pharmaceutical company. “Aurobindo and Lupin are two companies where promoters provide direction and guidance, while letting professional managers run company affairs,”a senior industry professional said about Reddy, who is also known for a reluctance to come on a public dais. He was executive chairman till December 2012. Then, he reduced his position to non-executive director, after shifting base to the US, to focus on the growth of Aurobindo’s US business.

Aurobindo is in a race with two other multinationals for the acquisition of Teva Pharmaceutical’s European assets