Cipla puts Medpro buyout on hold over valuation issues

MUMBAI: India's second-largest drugmaker Cipla has decided to put on hold its $220-million acquisition plan of the third-largest South African drugmaker Cipla Medpro due to valuation issues.

In November last year, Cipla had decided to buy 51% stake in Medpro, a move that could have given the Indian company access to the lucrative $3-billion African drug market.

"The JV is on hold and Medpro has not accepted the bid," YK Hamied, chairman of Cipla, told ET. "South Africa is not the only market for us to grow. Our new CEO will take a call on whether to proceed with the deal or not," added Hamied.

Medpro, which bought all its bulk drugs from Cipla, has been embroiled in controversy over the past one year with the sacking of its CEO and founder Jerome Smith by the board for financial mismanagement. Smith, in turn, sued the company for not following best corporate governance practices.

Also, since the time of the announcement of the deal, Medpro won large government contracts which prompted its board to seek a better valuation from Cipla. "The deal seems to be hitting a rough patch with a changing market environment (including management changes at Cipla Medpro and an unfavourable currency).

"The deal closure may be delayed, or in an extreme situation, stalled," said a report from Avendus Securities. Over the past year, Cipla had been trying to expand its international operations and had even set up a team in key regulated markets like the US and Europe.

The Indian company was trying to crack the prescription drug market in South Africa through Medpro products, which had a portfolio of central nervous system and respiratory drugs. However, analysts say that it's probably a good move by Cipla to put the deal on hold, especially in a market that's mostly dominated by AIDS and malaria drugs.

Typically, Indian drug companies have always been prudent in their buyout efforts and have stayed away from acquisitions that would have drained cash off their books. Just like Cipla, Sun Pharma, the largest drugmaker by market size, last week decided to scrap its plans to buy out the minority shareholders of its Israeli subsidiary Taro Pharmaceuticals, thus saving close to $600 million by aborting the deal.