Australian company buys Cheminnova in novel deal

Cheminnova, the leading contract manufacturer of pharmaceutical products, is soon changing hands. Rapid Nutrition, the Brisbane-based healthcare company, has decided to take over Cheminnova by acquiring a stake of about 74%.

The deal, which is all set to get a formal shape, is not straight from the M&A rulebook that usually harps on the combination of cash and stock. Rather, the companies have worked out an innovative dilutive equity-based model that would transfer control of Cheminnova to Rapid in phases.

“Eventually, in 18-24 months from now, Rapid would get a 74% stake and the original promoters of Cheminnova would get reduced to 26% stakeholders. The board and management restructuring, too, would happen in a similar pattern. The hike in stake is linked to achieving certain milestones,” said M Vasudeva Rao, chairman and managing director of Cheminnova.

Tapping overseas markets remains the big driver for both the companies. This is how the new arrangement will work. While in the first phase of the deal, the partnership would cater to the requirements of Rapid, the Australian company would look at tapping the markets in the Middle East, Africa and Asia in the second phase using the newly acquired production facilities in India. “The third phase would focus on making use of the Cheminnova facilities for third party contract manufacturing for certain companies in Australia and the final stage would take the products made in Hyderabad to the markets in the US, the EU and the like. Since all the facilities of Cheminnova have required regulatory approvals, it adds to the global plans of Rapid,” Ledger said.

It is these milestones to which the shift of equity interest is linked and the model is said to be assuring the original promoters their due share when it comes to profits.

Neither of the companies has revealed the financials of the deal due to a host of issues.

However, there is a non-compete agreement which binds the Indian promoters to the contract and does not allow any activity that will be in direct competition with Rapid-owned Cheminnova in future.   

The Hyderabad-based Cheminnova, which deals in contract manufacturing for pharma majors like Dr Reddy’s, Cipla, AstraZeneca, Abbott, TTK Pharma, Piramal, Dabur and Lupin, has three manufacturing facilities in India, including two near Hyderabad and one in Baddi, Himachal Pradesh. Injectables and orals form part of its wide range of products.

Rapid, on the other hand, is a leading player in the nutrition supplement space, whose anti-viral product is at an advanced stage of development. The company is currently working on getting listed on Deutsche Boerse in Germany.

“We have been outsourcing the entire manufacturing requirements to companies in Australia. With the current deal with Cheminnova, the entire production becomes in house and the low cost of production also helps us increase our margins,” said Simon Ledger, Rapid MD.

Cheminnova, too, sees big gains flowing out of the deal. “For now, Cheminnova is completely catering to the requirements of Indian pharma majors. The bouquet is expanding by way of the deal with Rapid. So, as the volumes and value increase, the take-home of the promoters too remains unaffected despite the reduction in equity stake,” Vaidyanathan Nateshan, head - business and strategy, Cheminnova, explained.