Pharma major Cipla said on Wednesday that it is in preliminary discussions to acquire 51% stake in Cipla Medpro South Africa, a company with which it already has a distribution tie-up, for $220 million.
The move underlines the rising importance of the African nation as a destination for Indian pharma companies, after the US, UK and Russia. In a notice to the exchanges, the company said that it has ?made an indicative proposal? with the SA firm, listed on the Johannesburg Stock Exchange, for a price of 8.55 ZAR (South African Rand) a share. Cipla had a cash balance of R1,000 crore on its books as on September.
?Based on Cipla Medpro’s current shares outstanding and spot ZAR/dollar exchange rates, the total consideration payable by the company would be around $220 million (exclusive of the anticipated dividend of up to ZAR 0.10 per share to be paid by Cipla Medpro to its shareholders for the 2012 financial year),” the notice said.
It added that “the discussions are subject to various conditions, including finalisation of due diligence, execution of definitive documentation, applicable board, regulatory and other approvals.”
“At this stage, there is no certainty that these discussions will lead to a firm offer being made or a transaction being consummated,” it said.
The SA pharmaceutical market was expected to almost double in the next six years, from $3.8 billion to $7 billion in 2018, on the back of profitable government contracts for HIV/AIDS and tuberculosis medications, said the African Business Review this June, citing a report by GBI Research.
Cipla’s association with the African market goes back over several years, and in 2001, its chairman YK Hamied took on multinationals and supplied anti-AIDS drugs at a $1 a day, at a time when the best selling drug by an MNC cost over $32 a day.
Cipla has also taken up huge price cuts recently in cancer drugs distributed in India. Cipla Medpro distributes Cipla’s products in SA and neighbouring countries, and is SA’s third largest pharma company. It has strengths in cardiovascular, antiretroviral, respiratory and neuropsychiatric categories.
Shares of Cipla were up 2.61% on the BSE on Wednesday to close at R389.70. Earlier, Cipla Medpro’s CEO Jerome Smith had tendered his resignation ahead of a hearing into alleged improprieties. Cipla committed itself to update the market as the process unfolds. Earlier this month, the company also appointed two new deputy CEOs, a move its acting CEO Johan du Preez said was the first step towards restoring good corporate governance.
Cipla has been reaping the benefits of its exports, and for the second quarter of the current fiscal, its consolidated net profit rose by 61.83% to R500 crore due to robust sales in domestic and international markets.
