Abbott, Wockhardt Terminate Nutritional Business Deal
This article was originally published in The Tan Sheet
Executive Summary
Pharmaceuticals and diagnostics giant Abbott and debt-ridden Indian drug maker Wockhardt call off their $130 million deal for a nutritional business announced less than a year ago
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Pharmaceuticals and diagnostics giant Abbott and debt-ridden Indian drug maker Wockhardt call off their $130 million deal for a nutritional business announced less than a year ago. Wockhardt's March 31 Bombay Stock Exchange notice announced the move without providing specific reasons. However, Abbott said there would be no financial penalties on either party. Abbott spokesman Scott Stoffel called India an important growth market for the firm's nutrition business. "Abbott will continue to explore strategies to advance the business there. We are continuing to make investments in all aspects of our operations in India and plan to introduce many of our global nutrition products to Indian consumers," Stoffel said in an e-mail. Abbott's international nutrition business, a key to driving new sales, has seen particularly strong growth in China, Southeast Asia and Latin America in recent years (1 (Also see "Sales & Earnings In Brief" - Pink Sheet, 20 Jul, 2009.)). In India, Abbott markets Isomil , PediaSure and Ensure infant formula products and Glucerna dietary supplement beverages, and plans to introduce additional products from its broad-based nutritional portfolio in the next few years. India Still On Abbott's Radar The setback may lead Abbott to scout for other deals within the same space, said an analyst with a consulting firm. An Abbott executive VP's recent statements about combining the firm's acquired brands, local manufacturing capability and the commercial infrastructure with existing pediatric and adult nutritional offerings could indicate the firm is looking for other deals in India, the analyst noted. The resolve to make a big impression in India continues in the aftermath of the failed transaction with Wockhardt. "We're constantly evaluating opportunities that can help continue the growth of our diverse businesses but won't speculate on hypothetical possibilities," Stoffel said. Faced with mounting costs linked to debts of more than $700 million, Wockhardt in July 2009 agreed to sell its thriving nutritional business, including Farex and Protinex brands, to Abbott (2 'The Tan Sheet' Aug. 3, 2009, In Brief). At the time, Abbott said Wockhardt's brands and manufacturing facilities made for an "excellent strategic fit" and it expected the Indian nutritional market "to experience strong growth in the coming years." From Abundant Credit To Court Battles Who moved first to halt the deal is unknown, but market watchers said Wockhardt has been battered by a slew of hedge funds and foreign banks that subscribed in 2007 to its $110 million foreign currency conversion bonds. Wockhardt raised the money for funding future expansion at a time when credit was available in abundance. But as the global stock market meltdown and the wider financial crisis played out, bond holders who had expected profitable conversion or redemptions of their Wockhardt holdings saw a headlong erosion of the bonds' value. Financial institutions and investors have battled Wockhardt in Indian courts, asking that proceeds of asset sales go toward retiring external debt rather than into internal operations. Wockhardt has a mix of secured and unsecured lenders clamoring for money from the bonds that matured in October 2009. Wockhardt also sold its veterinary care division to French firm Vetoquinol and its German generics business to Mova, but the Indian company subsequently managed to gain substantial funds from a group of banks in a time-bound corporate debt restructuring plan (3 (Also see "Unable To Manage Debts, India’s Wockhardt Calls For Financial Restructuring; Habil Khorakiwala Resigns As Managing Director" - Scrip, 31 Mar, 2009.)). An industry source said with some financial cushioning now, Wockhardt has managed to tackle the crisis, and terminating the Abbott deal appears to be a sensible move. "It works for Wockhardt to ride on 18 to 20 percent growth of its nutritional brands and extract more value in the years ahead," he explained. [Editor's note: Additional coverage of Asian markets is provided at PharmAsia News, Elsevier Business Intelligence's Web site for Asian biotech and pharmaceutical news. 4 Sign up for a no-risk, 30-day trial subscription.] - Vikas Dandekar ( 5 [email protected] ) |