INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

MYLAN TO BUY 71.5% IN MATRIX FOR RS 3,424 CR

US GENERIC drugs giant Mylan Laboratories on Monday announced the largest takeover in the Indian pharma industry by agreeing to buy Hyderabad-based Matrix Laboratories for up to $736 million in cash.

The cash-and-stock deal, worth Rs 3,424 crore ($736 million), helps Mylan establish a major foothold in India , the fourth-largest drug market by volume.

As per the terms of the deal, Mylan would acquire 51.5% from the existing shareholders of Matrix — Newbridge, Temasek and N Prasad — with up to 20% acquired on the open market. Mylan is offering Rs 306 per share of Matrix.

ET was the first to break the deal on June 22 and had followed it up with another story on August 14. Merrill Lynch and DSP Merrill Lynch acted as exclusive financial advisors to Mylan while ABN Amro was the advisor of Matrix. Law firm Luthra & Luthra was the legal advisor of Mylan in the deal.

Of the deal amount, N Prasad , founder of Matrix Labs, will take home a neat Rs 550 crore, having sold 12% of his stake, or 18 lakh shares, to Mylan. The Mylan deal values Matrix at $1.03 billion.

The transaction is expected to close in the calendar fourth quarter of 2006. Pharma industry trackers say, "What makes the deal even bigger is the fact that it validates the India success story. It shows that Indian companies can bring significant value to a global player. It also means that some Indian companies have perhaps reached a certain level of maturity where they become good acquisition targets."

It is a fairly straight fit for Mylan and Matrix. For Matrix, which grew leaps and bounds riding on the M&A wave, the time had perhaps come to move on to the next big growth path. With close to 40% of its stake in the hands of financial investors, the job really was to find a good strategic fit.

For Mylan, Matrix is the entry vehicle for the US player's steps towards globalisation. Matrix has opened gates for Mylan to high-value markets like Europe and under-served markets like Asia and Africa , besides cost arbitrage.

Mylan would buy 51.5% stake as part of negotiated purchases from the financial funds that are invested in Matrix and also 12% of promoter Mr Prasad's stake. Mylan will acquire all Matrix shares held by Temasek ( Mauritius ), entities controlled by Newbridge Capital and Spandana Foundation, which holds about 1%, totalling about 40%.

Mylan will make an open offer to Matrix's remaining shareholders, at the same price in cash, to acquire an additional 20%. The open offer is in line with Sebi takeover norms.

Matrix's executive chairman N Prasad said, in a statement, "Mylan, a proven industry leader, is an ideal partner for Matrix.”

OUR strategic vision remains unchanged and we believe this transaction creates greater growth opportunities for Matrix and its employees and also will allow us to accelerate our existing expansion plans in India and abroad, “Prasad said.

In a statement, Mylan vice-chairman and CEO Robert J Coury said: “This acquisition deepens Mylan's vertical integration and enhances its supply chain capabilities. The transaction will allow Mylan and Matrix to strengthen and expand their core businesses and competencies while creating significant opportunities for global expansion and growth.”

Incidentally, the deal did not do much for the Matrix scrip, which closed on BSE at Rs 277.55, up 0.14%. The scrip opened at 287.70 on Monday, reached an intra-day high of Rs 297 and a low of Rs 275.50 during trade session.

For the year ended March 31, 2006 , Matrix had reported a consolidated net profit of Rs 199.2 crore on net sales of Rs 1,158.6 crore. Earnings per share on a consolidated basis worked out to Rs 13.2 on a paid-up equity capital of Rs 30.7 crore bwith a face value of Rs 2 per share.

Post-acquisition, Matrix will remain a publicly traded company in India and will continue to operate on an independent basis. In fact, the company will continue to be known as Matrix Labs. Matrix's executive chairman N Prasad , who will now hold 5% of Matrix stake, will join Mylan's board of directors and executive management team.

Mylan would finance the deal by a combination of its revolving credit facility and cash on hand. Subsequent to their stake sale, Newbridge, Temasek and Mr Prasad would invest $93 million, $46 million and $25 million, respectively, in Mylan stock at a price of $20.85 per share.

The investment by the two funds and Matrix promoter in Mylan would be subject to regulatory approvals. Mylan expects the transaction to be accretive to its earnings estimates in fiscal 2008.

As part of the leadership change, Mylan vice-chairman and CEO Robert J Coury would assume charge as nonexecutive chairman of Matrix while N Prasad would become non-executive vice-chairman. The Mylan board of directors will be expanded to 10 members and Mr Prasad will join the Mylan Board and executive management team as head of global strategies in the office of the CEO. Rajiv Malik will continue as CEO of Matrix. Stijn Van Rompay, co-founder of Docpharma, will remain responsible for Docpharma operations.

Matrix will provide Mylan with a significant presence in emergingpharmaceutical markets, including India , China , and Africa , as well as aEuropean footprint and distribution network through Matrix's Docpharma subsidiary, Mylan and Matrix together will have approximately 5,100 employees in 10 countries.