Aurobindo to buy firm owned by promoter’s son

Hyderabad-based Aurobindo Pharma has decided to acquire Trident Life Sciences, which is setting up a liquid injectables unit in Medak on the outskirts of the city.

Trident is promoted by P Sharath Chandra Reddy, son of Aurobindo promoter P V Ram Prasad Reddy. Sharath Chandra is also on the board of Aurobindo as a non-executive director.

Trident has been mainly into clinical research (apart from setting up the injectables unit), primarily focusing on bioequivalence tests.

Aurobindo already has a business relationship with Trident as it gets all its bioequivalence tests done with the company.

However, Trident has folded its clinical research business into a separate entity.
Thus, what Aurobindo will buy is only the upcoming injectables unit.

 Aurobindo will pay Rs 134 crore for this acquisition. Of this, Rs 39 crore will go towards equity and about Rs 95 crore towards discharging debt Trident had incurred while setting up the injectables unit, which is coming up in about 30 acres.
Aurobindo will fund the transaction from accruals.

The last time a related-party transaction was done, it caused an earthquake in India Inc. That was when Satyam Computer Services tried to unsuccessfully “buy” Maytas Infrastructure and Maytas Properties.

Aurobindo officials, however, say everything here is as per rules.

“Where is the question of violation of corporate governance norms? We are not paying any premium to Trident. It’s on 1x pricing. The entire funding has already gone into building the unit,” a senior official of Aurobindo, who preferred to remain anonymous, told DNA.

The unit is said to be about 80% complete and Aurobindo will have to shell out another Rs 30 crore to complete it.

Aurobindo currently has about 10 directors on its board. While P V Ram Prasad Reddy, the founder of the company, is its chairman, K Nityananda Reddy is managing director. Nityananda Reddy’s daughter is married to Ram Prasad Reddy’s son and Trident chief Sarath Chandra Reddy.

M Madan Mohan Reddy and M Sivakumaran are two wholetime directors. M Sita Rama Murthy, former bureaucrat P L Sanjeeva Reddy, S Bimal Singh, K Ramchandran of the Indian School of Business and K Raghunathan are the other non-executive directors on the board.

“The board had extensive discussions on the topic of related-party transaction. However, we have not violated even a single statute. Everything is within the framework of law,” the official said.

The facility being set up by Trident will manufacture finished drug products such as glass vials for lyophilised sterile powder and liquids, ampoules, pre-filled syringes and blow-filled syringes. It is expected to commence operations in April 2011.

The valuation of the deal was done by KPMG India and Motilal Oswal Investment Advisors. R B Shah and Associates has done the assessment of replacement value of Trident’s assets.

As per these reports, which were placed before the board, as on June 2009, the total equity value of Trident is about Rs 38.84 crore. Total debt is about Rs 96.11 crore. The total enterprise value is Rs 134.95 crore. The total cash outflow from Aurobindo would be Rs 38.84 crore towards the equity while the debt remains to be discharged.

“When Trident wanted to set up the unit, Aurobindo did not have any visibility about the injectables business. So, the promoter’s son went ahead to set up his own unit. But, today, things changed. For instance, Aurobindo has Pfizer as a customer. It needs huge injectables supplies if everything goes well.

Today, it makes sense for Aurobindo to have an injectables unit. In fact, that is a $74 billion activity today. Aurobindo on its own could have set up an injectables unit even today. But, by acquiring Trident, we are saving close to two years,” the Aurobindo official said.