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Astra IDL takeover: Pricing logic

Dec 21, 2000

The takeover of a majority stake in Astra IDL by the foreign partner marks the end over the control over the company. The surprise, however is the price paid to the Hindujas. At Rs 670 per share it amounts to almost 25 times the per share earnings of the last year. Astra’s product portfolio is not too lucrative either. It has so far been focussed on anti–infectives and anti–malarials, which are the relatively slower growing segments of the pharmaceutical market. It’s major brand, the cough syrup Linctus Codeinae (a cough syrup) doesn’t enjoy the brand equity that its competitors Corex (Pfizer) or Phensedyl (Rhone Poulenc) enjoy. The Hindujas anyway did not have any core competence in pharmaceuticals. So the company was heavily dependent on Astra for new product introductions.

Then why were the Hindujas paid Rs 670 per share? One answer could be the fact that the real estate on which the company’s plant is located. This is an estate of 70 acre located near the new Bangalore airport and could be worth around Rs 3.5 bn (Rs 700 per share).

The other reason could be the fact that Astra Zeneca did not have a presence in the pharmaceutical segment in India, though it had two 100% subsidiaries in the agrochemical segment. With Zeneca being hived off internationally (to be merged with Novartis’ agrochemical arm), Astra needed a presence in India which could happen only if they bought out the Hindujas.

Meanwhile, the share price has jumped from a range of Rs 260 (on November 23, 2000) to over Rs 413, over the last month possibly in anticipation of the takeover.


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