Ranbaxy Laboratories to bid for Merck's generic drug business

Ranbaxy Laboratories, India's third-largest drug maker by market value, is planning to buy German pharma major Merck’s generic drug business, estimated to be worth more than €4 bn ($5.2 bn). If a deal is struck, Ranbaxy will become the third largest generic drug manufacturer in the world, behind Teva Pharmaceuticals of Israel and Swiss pharma company Novartis, with combined sales of $4 bn. Ranbaxy itself is valued at $3.5 bn, and aims to be one of the top five generic players in the world with $5 bn in annual sales by 2012.

Ranbaxy would likely be competing with other pharma companies such as Teva, Sandoz (Novartis’ generics division) and Sanofi-Aventis as well as private equity majors such as Blackstone and KKR, for acquiring the assets of Merck’s generic business. Ranbaxy hopes to be in the fray by January-end. The company is planning to raise finances for the acquisition through a mix of debt, equity and private equity.

In the year 2006, Ranbaxy laboratories had made six acquisitions - Be-Labs (South Africa), Ethimed NV (Belgium), Terapia (Romania) and the unbranded generic business of GlaxoSmithKline (GSK) in Germany and the Mundogen generic business of GSK in Spain.

Merck’s generics business has gross revenues of around $2.5 bn. The German company had announced last week that it was considering the sale of its generics division (Merck Generics) to raise resources for the acquisition of Swiss drug-maker Serono. Merck Generics has sales in more than 90 countries and accounts for the third largest generics business in the world. The division employs approximately 5,000 people world-wide.

A successful acquisition, besides tripling Ranbaxy’s topline, will give it greater access to key markets in the US, Europe and Japan. Moreover, with the Merck business not being vertically integrated, Ranbaxy can use its strengths in the active pharmaceutical ingredient (API) business to bring about greater cost synergies and efficiencies. It will also result in improved product flow, economies of scale and relative enhanced pricing power for Ranbaxy in the highly competitive generic industry.

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