Nicholas Piramal has announced the acquisition of 40% stake of Rhone Poulenc from Aventis AG. Wockhardt, Pharmacia Cadila and Ranbaxy were also in the race for acquiring this stake. The price at which the stake has been acquired is Rs 875 per share.
Nicholas had a cash and bank balance of Rs 497.5 m as at March 31st, 2000. Assuming the company would have to make an open offer for another 20% of the shares, Nicholas would have to shell out approx. Rs 2.35 bn for the total 60% stake. This means that it would have to take up a debt of Rs 1.70 bn which could imply an interest cost of Rs 220 m annually.
Rhone Poulenc reported a net profit of Rs 270 m last year and even assuming that the company reports a 25% growth in the current year, the company would end up with a profit of Rs 340 m. (Rhone’s second quarter profits were up 34% to Rs 90 m.) Assuming that 60% of the profits get consolidated in Nicholas’ books, the profits would more or less cover up the interest costs.
Rhone has top of the line brands such as its cough syrup Phensedyl (number two after Pfizer’s Corex), a children’s cough syrup Tixylix, an anti–amoebic Flagyl and an anti–epileptic Gardenil. The company has restructured its workforce by reducing its unskilled workers by over 600 people and increased its marketing team by 75 people to 375 medical representatives currently. Third, the company upgraded its Paithan plant (in Maharashtra) by additional investments recently. This helped it reduce the cost of material by nearly 10%. These are some of the positives, which encouraged Nicholas Piramal to bid for Rhone in the first place.
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