MUMBAI, February 20: The board of the Rs 525-crore Nicholas Piramal has decided to spin off its glass and bulk drugs businesses into separate subsidiaries effective April 1, 1998.As a first step, 40 per cent stake of the new glass company, Gujarat Glass Ltd, will be shared between three new partners, while the balance will be held by Nicholas Piramal.
According to Nicholas Piramal chairman Ajay Piramal, Indocean Packaging Ltd (a fund set up by Chase Capital Partners and the Soros Chatterjee group), the India Private Equity Fund (supported by the Overseas Private Insurance Corporation) and Citicorp Investment Bank (Singapore) Ltd will acquire the 40 per cent stake for Rs 118 crore.
Individual holdings of the three partners would be 11 per cent, 24 per cent and 5.4 per cent respectively.
The consideration received could see the Ajay Piramal group launch a major offensive on the acquisition front, both for brands and companies with a strategic fit.
Nicholas Piramal will, however, retain 54 per centequity with a further six per cent payable on achievement of certain performance criteria by April 1, 1999. This six per cent is held in the form of warrants and can be exercised at par. Piramal said the spinoff of the glass unit was being done since it was capital-intensive and a standalone company would provide more focussed attention and increased growth prospects in Australia and south-east Asia.
On the bulk drugs and fine chemicals business, Nicholas Piramal CEO Francis Pinto said a memorandum of understanding had been signed with a major European chemicals company, La Porte, to manufacture specialty chemicals with equity partnership. The partnership will give the company access to new technology alongside long-term supply contracts.
Nicholas Piramal is also working on a second alliance for an entry into the US market, which again will involve an equity tie-up. The proposed partners are expected to hold a majority stake in the new bulk drugs firm, christened Global Bulk Drugs and Chemicals.TheMutants
Glass Business
New company, Gujarat Glass Ltd, formed
Nicholas Piramal to hold 60 per cent in the new company
40 per cent of the equity to be picked up by Indocean Packaging Limited, India Private Equity Fund and Citicorp Investment Bank (Singapore) Limited
Rs 118 crore consideration for 40 per cent stakeBulk Drugs Business
MoU signed with an European Chemicals Company -- La Porte
Overseas partners expected to hold majority stake in new entity, Global Bulk Drugs and Chemicals.
To start manufacturing specialty chemicals
Talks on with other players for entry into the US market.INSIGHT
a bold gambit
Nicholas Piramal's decision to hive off the glass and bulk drugs businesses seems to be a well-thought-out move. Though the glass business showed good growth rates and had an 80 per cent domestic market share, it was a working capital-intensive business. But its future growth depends on huge investments,which would have eaten into the earnings from pharma. By hiving it off the company has not only received a one-time payment of Rs 118 crore, but a majority holding in the new company where earnings in the form of dividends are assured. As far as the bulk drugs division is concerned, its contribution to sales was only 10 per cent and operating margins were lower. The company had to resort to cutting down production after it turned around the business of Sumitra Pharma. La Porte, equity partner in the bulk division, will provide technology for the high-margin speciality chemicals business. Though Nicholas Piramal will have only a minority stake in the new company, returns will still be higher than now.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
