Chennai-based Orchid Chemicals & Pharmaceuticals has sold its penicillin and penem API business to the US-based Hospira for $200 million.
This is expected to help Orchid reduce its debt and enter new product verticals.
The business transfer and sale agreement with Hospira includes sale of Orchid’s API (active pharmaceutical ingredients) facility in Aurangabad (Maharashtra) and process R&D infrastructure in Chennai. The total consideration is in cash, said the company. Around 830 employees will be transferred to Hospira, a generics drug maker.
Orchid has been supplying the antibiotics penem and penicillin APIs to a couple of companies, including Hospira, for the US and UK markets. This Rs 450-crore business represents 23 per cent of Orchid’s consolidated sales. “Though it was a profitable business, margins were coming down with increasing competition,” said a company spokesperson.
In a statement, Chairman and Managing Director K. Raghavendra Rao said: “It is a prudent decision for Orchid to bring in cash to de-leverage its debt position and fund newer growth horizons in niche products and therapeutic verticals.”
Orchid’s debt stands at Rs 2,200 crore. “This position was primarily triggered by an ECB loan we had taken to redeem an FCCB bond. Around Rs 800 crore from the business transfer will go towards debt repayment,” said the spokesperson.
In 2009, Orchid had sold its injectables business to Hospira for $400 million. Orchid also has a 10-year contract to supply cephalosporin APIs to Hospira. Currently, Hospira accounts for 22 per cent of Orchid’s total sales (this includes supply of cephalosporin, penem and penicillin APIs).
The businesses that remain with Orchid are cephalosporin and non-cephalosporin API, oral formulations and R&D. Orchid’s consolidated revenues for 2011-12 were Rs 1,900 crore.
Since some of Orchid’s API requirements for the non-penicillin, non-penem, non-cephalosporin business were supplied by the Aurangabad facility, Hospira will supply these to Orchid through a long-term agreement.
The Hospira transaction is expected to be completed in the third quarter of 2012-13. Latham & Watkins LLP acted as the international legal advisor and Amarchand, Mangaldas & Co was the Indian legal advisor to Orchid.
At the end of June, promoters held 32.42 per cent stake in the company, of which about 75 per cent is pledged with financiers. Foreign institutional investors held 12.18 per cent while retail investors had an exposure of 23.14 per cent.