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Mylan Signs US$736-mil. Takeover Deal for India's Matrix Laboratories

Published: 28 August 2006
U.S. pharmaceutical company Mylan has announced its intention to acquire 71.5% of Indian generics firm Matrix Laboratories for US$736 million—a significantly higher sum than had been rumoured in the press.

Global Insight Perspective

Significance

Mylan Laboratories is to acquire a 71.5% stake in Indian generics firm Matrix Laboratories, for approximately US$736 million.

Implications

The takeover will include all of Matrix's subsidiary firms, including Belgian drug-maker Docpharma. Mylan will gain access to several large developing markets through the deal, namely China, India and Africa.

Outlook

Following the failed takeover of King Pharmaceuticals in early-2005, the acquisition of Matrix Laboratories sees Mylan return to its core generics franchise as a key revenue-earner, rather than strengthening its brand-name drugs portfolio. However, gaining access to key markets such as India and China will be profitable for the company in the long term.

Deal Opens Doors to Developing Markets

U.S. pharmaceutical heavyweight Mylan Laboratories is to acquire a majority stake in Indian generic drug-maker Matrix Laboratories, with the takeover predicted to be finalised by the fourth quarter of 2006. Worth a total of US$736 million—or 306 rupees (US$6.57) per share, if the offer is fully subscribed—the acquisition will be made in two steps: Mylan will initially purchase 51.5% of Matrix Laboratories' shares, after which the U.S. firm will make an open offer to the Indian company's remaining shareholders to acquire the remaining 20% of the targeted stake. According to Mylan, Matrix will "remain a publicly traded company in India and will continue to operate on an independent basis". The three largest shareholders—Temasek (Mauritius) Pte Limited, Newbridge Capital and Matrix Laboratories chairman N Prasad—have all agreed to use a portion of the funding they receive from the deal to purchase newly issued shares of Mylan common stock; Temasek has agreed to invest US$46 million in the stock, while Newbridge and N Prasad have pledged US$93 million and US$25 million respectively.

The combined company will boast a total workforce of approximately 5,100, working across 10 countries. Matrix will provide Mylan with access to many important emerging markets, such as India, China and Africa. Mylan also stands to gain from the lower production costs at Matrix's Indian operations, allowing the company to pursue a greater number of drug-development projects simultaneously. While Matrix is set to obtain better access to the all-important U.S. market for its own products though the takeover, specific sales and marketing agreements have yet to be made public. Matrix currently has more than 165 active pharmaceutical ingredients (APIs) either on the market or in clinical development.

Better than Expected

News of the takeover comes barely two months after media speculation first began over a potential Mylan-Matrix merger. It was reported in June that negotiations were being carried out over the acquisition of a stake in Matrix worth just US$434 million (see India: 22 June 2006: Acquisition Speculation Grows over U.S.-Based Mylan's Interest in India's Matrix). However, it remains unclear whether the size of the stake or its value has increased since then. Last week, it was Matrix's European subsidiary—the Belgium-based Docpharma—that became the subject of acquisition rumours, with the buzz again focusing on a higher-than-expected offer price (see Belgium: 25 August 2005: Docpharma Rumoured to be Subject of Mylan Acquisition Offer).

Outlook and Implications

While the takeover itself is expected to be fully complete before the close of 2006, Mylan does not anticipate the two firms to start jointly reporting their financial results until the company's fiscal year (FY) 2007/08, which begins on 1 April 2007. For Mylan, the acquisition of Matrix Laboratories heralds a positive change from just over a year ago, when the U.S. company was struggling to overcome the disappointment of its failed takeover attempt on King Pharmaceuticals (see United States: 28 February 2005: Mylan Drops King Acquisition Plans). The rationale behind the King acquisition offer was to branch out and diversify away from Mylan's core strength in generics production, moving toward higher-end brand-name products. However, while a shaky few months ensued, Mylan nonetheless started its FY2006/07 with a bang, reporting a double-digit rise in earnings, with particular emphasis put on the company's strong performance in the U.S. generics market (see United States: 27 July 2006: Mylan Profits Up 76% in Q1 2006/07).

By acquiring a controlling stake in Matrix Laboratories, Mylan is now poised to see its generic drug sales expand into developing markets, where the turnover of such products often outstrips that of more expensive brand-name drugs. A move into the rapidly growing Indian pharmaceutical market thus makes long-term financial sense for Mylan (see India: 13 June 2006: Pharma Sector Achieves 10% Growth in India during First Half of 2006). Among other projects, the two firms are planning to use Matrix's status as a leading supplier of generic anti-retroviral (ARV) APIs to launch partnerships with international HIV care programmes, as a provider of lower-cost patient treatments.

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