SUN PHARMA HIKES US ARM CARACO STAKE TO 60% FOR $42M

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Sun Pharmaceutical Industries has hiked its stake in its US subsidiary, Caraco Pharmaceutical Laboratories to 60%. The Mumbai-based pharma player entered into an agreement with two large shareholders of Caraco to acquire most of their common stock and options for $42m. The acquisition was at a consideration of $9 per common stock/option, involving a total outlay of about $42m. The acquisition will be funded through internal accruals. The agreement will increase Sun Pharma and its affiliates equity positions in the company to over 60% from 44% on a fully-diluted basis, including options.

The company's board cleared this investment, the agreement for which was inked last month with the two shareholders, to strengthen its base in the high-priority United States generics market. "We view this as a firm intent of our long-term interest in the US generic market, the potential that we see there and the capability of the management at Caraco to partake of this growth," said Dilip Shanghvi, CMD, Sun Pharma. Detroit-based Caraco Pharmaceutical Laboratories develops, manufactures and distributes generic and private-label prescription drugs to some of the nation's largest wholesalers, distributors, drugstore chains, healthcare systems and state and federal agencies.

Sun had first picked up a 30% stake in Caraco in 1997 and invested about $7.5m in equity and about $9.6m in loans. This gave Sun a platform to market its products in the US. At that point the two companies entered into an agreement, which allowed for the transfer of 5,44,000 shares of Caraco for each technology transfer made by the latter. Since 1997, Sun increased its stake in the US subsidiary to 49% through this route. In the September to December quarter of '03, Sun's holding decreased to 44% when two directors left the company. Sun had been wanting to increase its stake in the US subsidiary for a while now but some of members on the board of Caraco were stalling the process. While the Mumbai-based company offered six products to Caraco in '03, the latter has not filed a single abbreviated new drug application with the US Food and Drug Administration.

Sun subsequently decided to file these products through its FDA-approved Indian facility.

The transfer of 25 products is still pending and each of these transfers will lead to Sun getting an additional 5m shares in Caraco. Of these, one more was filed in December and seven more filings are expected to be complete this year.

For the year '03, Caraco recorded a turnover of $45m, registering over a 100% increase from $22m in '02. For this year, the company has said that it is expecting a 22-25% growth rate.

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