Glaxo, Sanofi-Aventis eye Shantha Biotech

NEW DELHI: India���s Shantha Biotech is on the block, with European drugmakers GlaxoSmithKline and Sanofi-Aventis in separate talks to buy out its France-based majority owner Merieux Alliance, which is eyeing a deal that values the unlisted Hyderabad-based firm at as much as Rs 1,200 crore, two persons familiar with the matter said.

The first person, who has knowledge of the negotiations, said Merieux, which owns an 80% stake in Shantha Biotech, was quoting a number between Rs 1,000 crore and Rs 1,200 crore in its discussions with the two suitors, but that could come down as the talks had just begun.

���The proposed deal will allow the buyer to get a majority stake and management control. Talks are at an initial stage and Merieux is looking at selling its entire 80% stake,��� this person said.

The second person, a senior executive in India���s pharma sector, confirmed the talks between Merieux and the two European drugmakers, and said GSK was the front-runner to clinch the deal.
Although he was not aware of the numbers, he said a valuation of more than Rs 1,000 crore for Shantha appeared plausible.

Both GSK and Sanofi-Aventis called the report speculative. Merieux did not respond to an email sent by ET on March 26. The minority partner in Shantha, KI Varaprasad Reddy, who is also the firm���s MD and original promoter and holds a 17% stake, said Merieux regularly received collaboration proposals although he was not aware of any sale discussions.

In 2006, Merieux Alliance bought an initial 60% stake in Shantha and subsequently increased it to about 80%. The Indian company, whose sales are estimated to be around Rs 200 crore, shot into the limelight after it became the first firm in the country to develop and market a recombination Hepatitis B vaccine in 1997.

Shantha Biotech, which has since failed to repeat the success of its first Hepatitis B vaccine and has seen sales growth ease because of competition from rivals such as Wockhardt and Panacea Biotech, employs over 700 people and markets a range of vaccines in India and global markets. It also provides contract research and manufacturing (CRM) services, and has a wholly-owned subsidiary in the US.

A deal to buy the company will appear to confirm the new-found love among top global drugmakers to aggressively scout around for manufacturers of generic drugs to maintain their revenues. Indian drug companies specialise in making copycat versions of blockbuster drugs and low-cost versions of drugs whose patents have expired. A steep stockmarket decline has hit valuations of many Indian firms, making them attractive targets.

Analysts said Shantha Biotech was a good takeover candidate, although some said the quoted valuation appeared to be on the higher side.

���It���s a readymade company that can provide low-cost research and manufacturing facilities. It also has an attractive product basket and would be a good buy,��� said Ranjit Kapadia of Prabhudas Lilladher, a Mumbai-based brokerage.

Last year, Japan���s Daiichi Sankyo acquired India���s largest drugmaker Ranbaxy for $4 billion. Other Indian pharma companies such as Mumbai-based Piramal Healthcare and Wockhardt have also been reported to be in talks with global companies to divest a part of their respective businesses, although Piramal has repeatedly denied any such move.