Wockhardt, Abbott call off nutrition business deal

Almost eight months after it entered into a deal with US-based Abbott to sell its nutrition business, homegrown Wockhardt on Thursday announced the two companies have “jointly decided to terminate the agreement.”

The nutrition business is worth Rs 250-300 crore. The deal, signed in July last year, was for around Rs 620 crore and comprised Wockhardt’s major child care brands Farex, Dexolac and Nusobee infant formulas and Farex weaning cereal, along with nutritional supplement Protinex. Wockhardt had acquired Protinex and Farex in 2006 from Royal Numico NV of The Netherlands.

Though no reason was given for termination of the deal, industry experts say it has to do with Wockhardt’s problems with its lenders.

Sometime ago, New York-based investor fund QVT Financials was said to be planning to block Wockhardt’s deal with Abbott till all issues relating to its foreign currency convertible bonds were resolved.

“The pressure from the lenders would have frustrated Abbott as the deal was taking longer than anticipated. This could have triggered the termination,” said an industry expert.

However, a source closely associated with Wockhardt put it differently. According to the source, back when the deal was signed, Wockhardt was in a rush to divest its businesses and found a buyer in Abbott. However, the deal was opposed by lenders. “Today the urgency to conclude the deal has tapered out, so the company might be of the view that there is no point going ahead when there is opposition, and hence it’s best to wait out for a better buyer in future.”

Wockhardt is carrying debt of over Rs 3,700 crore. In March last year, it had decided to restructure the debt by making a reference to the corporate debt restructuring (CDR) cell through ICICI Bank.

As part of the CDR package, the company has to raise about Rs 790 crore through divestment of its non-core assets by 2015.
In June, Wockhardt sold its German business Espharma to Mova GmbH for about Rs 120 crore. Immediately thereafter, the Mumbai-based company sold its animal health business to France’s Vetoquinol for Rs 170 crore. The company has also sold 18 acres of land at Mulund for Rs 200 crore to Runwal Group.

Analysts feel the termination is a setback for Wockhardt as it could have received over Rs 600 crore had the deal sailed through.
An analyst at a broking firm, however, feels the company stands to get better value when it makes another attempt to sell the nutrition business since Farex and Protinex are popular over-the-counter (OTC) products, growing at 17-18% annually.

The question now is how Wockhardt will mobilise funds to meet its debt obligations, asks Bhavin Shah, research analyst, Dolat Capital Market.

According to Navroz Mahudawala, associate director, life sciences practice, Ernst & Young, the OTC market continues to generate huge interest from buyers. “The interest in a good business or asset always continues and especially in India there will never be a dearth of buyers willing to pay top valuation.”