WOCKHARDT’S deal to sell its nutrition business to US company Abbott was called off by both parties, as the troubled Indian drugmaker buckled under pressure from foreign lenders to stop the sale.
“Wockhardt was unable to resolve debt restructuring issues with some of its lenders,” Abbott said in an emailed statement. But, analysts as well as those tracking Wockhardt feel the company may be negotiating a better deal. Wockhardt officials refused to comment.
Wockhardt had agreed to sell its nutrition business to Abbott for about Rs 600 crore last July, in the face of a severe cash crunch. In October, the company defaulted on payments of overseas convertible bonds that had matured.
Bondholders and other unsecured lenders approached the Bombay High Court to prevent Wockhardt’s sale of assets as 10% of the proceeds would be bagged by promoters as a noncompete fee and the rest would be given to secured lenders. They argued that the entire amount was due to all lenders.
“Good for Wockhardt; it will now be able to fetch more money for the same deal,” said Ranjit Kapadia, vice-president of institutional research at HDFC Securities. It was a distress sale, and valuations of the business and the company have improved now, he added.
A year ago, firms like Pfizer and Danone were reportedly interested in Wockhardt’s nutrition division, but it’s unclear whether they would pursue the possibility now. More recently, there have been rumours that French firm Sanofi-Aventis may strike a deal with the Indian company. But whoever steps in will have to grapple with the same legal issues.
Interestingly, the stock market cheered the end of the deal as Wockhardt’s shares ended the day 3.3% higher at Rs 143.30, compared with a 1% rise in the Sensex. The company’s nutrition business is growing at 15-16% annually on sales of around Rs 200 crore last year, Mr Kapadia said. Wockhardt’s total revenues in 2009 were Rs 3,629 crore, up 1% from the previous year.
Local banks’ backing co
“I can’t certainly say the deal fell through because the court did not approve the sale... I don’t rule out the possibility of another buyer stepping in,” said a senior lawyer familiar with the court battle between Wockhardt and unsecured creditors like foreign firms that sold derivatives and investors in the company’s convertible bonds. The court never approved the sale to Abbot as these creditors opposed the arrangement for Wockhardt to receive a hefty non-compete fee. The local banks led by ICICI and SBI, however, are backing Wockhardt’s debt rejig programme, which includes sale of assets. Since October, Wockhardt has completed one debt restructuring exercise and has Rs 500-crore loan sanctions, a company source said. There is no immediate need for cash from the sale, he said. “This doesn’t affect the corporate debt restructuring of Wockhardt.”
Wockhardt also issued preference shares worth Rs 610 crore to four Indian banks—State Bank of India, Indian Overseas Bank, Punjab National Bank and HDFC Bank—as part of the ongoing restructuring of its Rs 3,400-crore debt. The pleas of foreign unsecured lenders—Calyon, Barclays Bank and ABN Amro—and those of convertible bondholders remain before the high court. These creditors feel short-changed in the debt restructuring of Wockhardt, and will argue that the company’s assets be sold to settle their debt. The case will be heard on April 16.
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