Abbott piramal outlook

 Tanu jaiswal
 Yawar waqar
 Akhil sood
 Debangshu
 Laveena
 Zubair mailk
 Puneet puri
2/18/2012 HAMDARD BUSINESS SCHOOL
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• Abbott Healthcare Private Limited, India
ACQUIRER
• Piramal Healthcare Limited, India
SELLER
• Domestic Formulation Business (including mass market) which
manufactures, markets and sells branded pharmaceutical products in finished
form.
ASSETSACQUIRED
• BusinessTransfer of the Formulation Business into AHPL as a going concern.
MODEOF ACQUISITION
• USD 3.72 billion (approx. INR 175 billion). Upfront payment: USD 2.12 billion
Future payment: USD 400 million payable upon each of the subsequent four
anniversaries of the closing commencing in 2011.
CONSIDERATION
• Cash on the balance sheet of AHPL.
MODEOF FUNDING
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 Abbott is following a Emerging market
penetration strategy.
 Near saturation of the western market is
bringing MNC’s to India.
 This deal would help them give an edge over
their competitors.
 Added attraction: In India, individuals and not
govt pay for a big portion of the healthcare
costs.
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• TheAbbott-Solvay-Piramal trio would emerge as the undisputed leader in the
lucrative Rs 4,350 crore gastrointestinal market with over 11% share.The trio
would outperform Cadila Healthcare, Dr Reddy’s and Alkem on its way.
Abbott-Solvay-Piramal
• Abbott & Piramal together can form a combined market share of over 8%.The
duo would surpass rival MNCs Novartis, Pfizer,GSK, Merck among host of other
companies.
Vitamins & nutrients
• Piramal holds 6.5% market share in the dermatology segment and with this
acquisitionAbbott will become among the top 5 players solely riding on this
acquisition.
Dermatology Segment
• Abbott-Piramal duo would make solid gains and jump straight to the second
position only trailing Sun Pharma
Neurology Space
• Abbott would gain significant presence riding on Piramal’s strength. In the
segment, whileAbbott figures nowhere in the top 10, Piramal commands a
market share of 5.6% and the sixth position
Core Anti-infectives
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fjjj
Piramal Group
(Promoter Group)
Formulation
Business
Abott Healthcare
Pvt. Ltd.
Piramal
Healthcare Ltd.
Public
Shareholders
Abbott
Laboratories, US
A
100%
47.9%
52.1%
CASH USD
3.72bn
Business
Transfer

2/18/2012
HAMDARD BUSINESS SCHOOL
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Target Company Acquirer
DealValue
(USD mn) EV/SALES Mode of Acquisition
Matrix Labs Mylan 736 4.1x Acquired whole company
Ranbaxy Labs Daiichi 4600 6.4x Acquired whole company
Dabur Pharma Fresenius Kabi 273 3.7x Acquired whole company
Santha Biotec Sanofi-Aventis 784 8.7x Acquired whole company
Orchid Chemicals Hospira 400 5x Acquired Injectable business only
Piramal
Healthcare Abbot 3700 8.1x
Acquired domestic formulation
business
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 Net Cash flow= 4616 cr
 Equity share capital= 3358 cr
 Debt= 286.27 cr
 Return on sensex (rm)= 11%
 Beta β= 0.4
 Debt interest rate (rd)= 28%
 Risk free rate (rf )= 7.5
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 Yearly growth rate:
o 1st year: 5.6%
o 2nd year: 10%
o 3rd year: 10%
 Terminal growth rate=2%
 Total number of share= 167210515
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 Per share value = Equity share capital
No. of shares
= 33580000000
167210515
= Rs 200
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Cash flows:
CF1 = 4874.4 Cr
CF2= 5361.84 Cr
CF3= 5898.024 Cr
re= rf +β (rm- rf)
= 7.5 + 0.4(11-7.5)
= 7.5+ 1.4
re = 8.9 % = 9 %
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We* re + Wd* rd
We= E/D+E = 3358 = 3358
3358+286.27 3644.27
Wd= D/D+E = 286.27
3644.27
re= 9% rd= 28%
WACC= 3358 * 9 + 286.27 * 28
3644.27 3644.27
= 0.92*9 + 0.08*28 = 10.54
= 11%
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TerminalValue = CF3* (1+g)
(r-g )
= 5898.024 *(1+0.02)
(.11-.02)
= 5898.024* 11.33
TV = 70490 Cr
Discounted Cash= 4874.4 + 5361.84 + 5898.024
(1+.11) (1+.11)2 (1+.11)3
= 4391+ 4597 + 4573.3
= 13561.3
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DiscountingTV
= 70490 = 51830.8
1.36
EnterpriseValue =TV + CF
= 51830+ 13561.3
= 65391.3
EquityValue = EV-(Debt- Cash)
= 65391.3-(286.27-0)
= 65105.03 Cr
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price per share = 65105.03
167210515
= 389.35
Hence, undervalued
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Particulars Amount
Up Front Payment (US $mn) 2120
NPV of Future Payments 400mn US $ for 4 years
from 2011 (Discounted at 10%) 1268
PVTotal Reciepts (US $ mn) 3388
PVTotal Payments (cr) 15856
Additional PaymentTo PEL(Rs) 350
EV/SALESValuation 8.1
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 Current valuation of the deal is at 6.6x and 5.5x on basis of FY11e and FY12E sales.
 We see the valuation of Piramal’s DFB at 7x on basis of FY10 sales.

 The CompaniesAct, 1956
 Securities and Exchange Board of India
(SEBI)Takeover Code
 Foreign Exchange ManagementAct, 1999.
 CompetitionAct, 2000
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Big Pharma companies has three big
problems —
 Its most important drugs are losing patent
protection, growth in developed markets is
slowing to a crawl, and much of its cash is
trapped overseas
 Abbott’s purchase of India’s Piramal
Healthcare’s generic drugs business for $3.7
billion offers a partial answer to all three
variables.
 Six of the world’s ten biggest drugs are likely
to lose U.S. patent protection by the end of
2012.
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 Other major markets in Europe andAsia are
on similar timetables.The value of many big
franchises will be gutted as cheaper versions
of these compounds are introduced.
 As a result, growth of drug sales in developed
countries is likely to be between 3 and 6
percent over the next several
years, according to IMS.
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 Of course, big drugs companies can console themselves with the fact
their businesses still generate substantial profits and cashflow.The
trouble is that much of this comes from foreign subsidiaries, where it
remains stashed away. Repatriating the cash to pay investors dividends
or buy back stock would generate a large tax bill.
 One way to deal with these myriad problems is to move into the generics
business, as Novartis , Sanofi-Aventis andAbbott have.
 Another is to expand into emerging markets. India, for example, is
growing about three times as fast as developed markets, and given the
state of medical care there, it is unlikely to slow any time soon.
 A third response is for drug makers to put their stashed cash to work
overseas buying foreign companies.
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Unfortunately for Abbott, the answer doesn’t come cheap.
Piramal’s sales this year should be above $500 million, according
to the company.While Abbott’s only paying a chunk of the cash
over several years, the net present value is still 6.4 times trailing
sales.The typical generic company goes for around 3.5
times, according to Credit Suisse.
Abbott’s deal has other attractions.
 The return on the investment appears rather low, but is probably
better than leaving the funds smoldering in a bank. Moreover, the
Piramal business gives Abbott scale in India.With a population
greater than a billion, and the proportion that can afford medicine
rising rapidly, that’s a pretty good place to be.
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 Cross-border mergers place Indian
companies on the global map.
 Being a significant part of the global
pharmaceutical sector will help the Indian
companies to take further steps in
maintaining the global pharmaceutical
standards
 Including exports, increased profitability,
increase in the R&D laboratories, funding
received by the companies, increased
number of patented products, expansion of
their market share etc.
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 This in turn will be beneficial to the global
pharmaceuticals as well since the cost effective
techniques used by Indian companies and the huge
market India provides to this sector can help enhance
the research and creation of newer and improved
drugs.
 Although there always remains the risk of losing
individual identity of such companies or exposing the
industry to a threat of rampant takeovers, on the
whole Mergers elevates the economic graph of the
country.
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THANKYOU !
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Abbott piramal outlook

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