Abbott-Piramal Healthcare Deal analysis
Deal overview
On 21 May 2010, Abbott Laboratories announced the acquisition of the healthcare solutions business (domestic formulations business) of India based Piramal Healthcare for an up-front payment of US$2.12 billion with payments of US$400 million annually for the next four years, beginning in 20111. Abbott is a global health care company engaged in the discovery, development, manufacture and marketing of pharmaceuticals and medical products. Mumbai-based Piramal Healthcare Solutions is a leading provider of Indian branded generics, with a portfolio of around 350 products, including therapeutic areas such as antibiotics, respiratory diseases, diabetes and cardiovascular diseases.
Deal highlights
According to the terms of the agreement, Abbott will obtain access to Piramal's manufacturing facilities in Baddi in Himachal Pradesh as well as the rights to sell more than 350 brands in the domestic market2. Around 5,000 employees of Piramal's Healthcare Solutions will now become part of Abbott, which will take Abbotts headcount to 7,500 in India2. Piramal Healthcare will retain its Custom Manufacturing business, its Critical Care business, over-the-counter (OTC) Consumer Products business, bulk-drug manufacturing business and Diagnostics business2. Piramal will not engage in generic pharmaceutical business in India and other emerging markets for the next eight years2.
Implications of the deal
Abbott could become the leading pharmaceutical company in India: Piramals Healthcare Solutions division is expected to generate more than US$500 million in revenues in 2011 and continue to grow at 20%, with sales reaching US$2.5 billion by 2020. With this deal, Healthcare Solutions and Abbotts businesses will cumulatively become the market leader in India, with a market share of nearly 7%3.
1
Abbott to become no.1 pharmaceutical company in India with acquisition of Piramals healthcare solutions business, Abbott Press release, www.abbott.com/global/url/pressRelease/en_US/60.5:5/Press_Release_0861.htm, 21 May 2010. 2 A 'Bigger Foothold': What Does the Abbott-Piramal Deal Mean for Indian Pharma? Knowledge@ Wharton website, http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4484, 3 June 2010. 3 Abbott Laboratories, Credit Suisse, 21 May 2010, via Thomson Research.
The Piramal deal fits well with Abbott's emerging markets strategy: Abbott is shifting its focus toward emerging markets to combat the twin challenges of slow growth in developed markets and maturing product pipelines. This deal is intended to consolidate Abbotts foothold in emerging markets such as India, along similar lines to the companys recent deals with Solvay and Zydus3. Impact on earnings per share guidance (EPS): Industry analysts have projected that the Piramal deal will not impact Abbotts 2010 EPS guidance of US$4.134.18. Moreover, Abbott has predicted that this deal will be neutral to EPS over the next few years and will be accretive thereafter3. Abbott sales outlook FY11 (US$ billions) Sales Y-o-y growth (excluding Piramal) Sales with Piramal Y-o-y growth with Piramal Abbott EPS outlook FY11 (US$) EPS Y-o-y growth (excluding Piramal) EPS Y-o-y growth with Piramal
Source: Abbott Laboratories, Credit Suisse, 21 May 2010, via Thomson Research
FY12 (US$ billions) 38.46 3%
FY13 (US$ billions) 39.26 2%
FY14 (US$ billions) 39.43 1%
FY15 (US$ billions) 40.43 3%
37.39
37.89
39.06 3%
39.98 2%
40.29 1%
41.47 3%
FY12 (US$) 4.64 3%
FY13 (US$) 4.78 3%
FY14 (US$) 4.60 -4%
FY15 (US$) 4.79 4%
4.51
4.56
4.70 3%
4.85 3%
4.69 -4%
4.90 4%
