IPCA Laboratories is acquiring 33.38% from the promoters of Unichem Laboratories (UL).
- Promoters before this transaction owned 50.94% of UL. Out of the balance, 9.85% was held by the institutions and 39.21% by the retail investors.
- Transaction is announced @ Rs 440/ share aggregating to Rs 1,034.06 cr. This implies a premium of about 17% over the current market price.
- In accordance with the regulations, IPCA has also announced an open offer upto 26% at the same price.
Rationale for the transaction
As is always the case with any merger and acquisition – synergies.
Official communication is – “The business and products range of the Company and that of Target Entity, both of whom are in the pharmaceuticals business, complements each others business/product range.”
Unichem over last 10 years, reported a sales CAGR of 4% and profit CAGR of -8%. In last twelve months, it reported a sales of Rs 1,311 cr, operating profit of only Rs 6 cr and net loss of Rs 86 cr.
It’s abundantly clear that the business was struggling and promoters must be relieved with cashing out at premium.
IPCA is obviously four times larger in size and has a much better financial profile. However, it’s ability to turnaround UL, and justify the price it’s paying, remains to be seen.