The Hindu Business Line : Orchid enters into strategic alliance with Ranbaxy

New Delhi, April 22 Thwarting a possible takeover bid, Orchid Chemicals & Pharmaceuticals has struck a peace alliance with Ranbaxy Laboratories Ltd for jointly manufacturing and marketing of drugs across various geographies.

The move comes after Ranbaxy built up a 14.7 per cent stake in Orchid by buying shares from the open market through a subsidiary unit Solrex. For the first time, Ranbaxy on Tuesday admitted that Solrex was a partnership between two of its wholly owned subsidiaries – Solus Pharmaceuticals Ltd and Rexcel Pharmaceuticals Ltd.

When asked as to why the company had so far declined to comment on its relationship with Solrex, Ranbaxy’s Chief Executive and Managing Director, Mr Malvinder Singh, said, “There was no requirement for us to disclose the details pertaining to Solrex. Had we done that, it would have taken the share price zooming up.” While Mr Singh refused to comment on the possibility of increasing Ranbaxy’s stake to 15 per cent, he said that all options are available.

“I cannot comment on the future but all options are open,” he said. Orchid has been weighing a number of options to ward off any attempts by Ranbaxy to increase its stake to 15 per cent, though the latter had made it clear that it was not interested in a hostile takeover.

According to Indian regulations, the acquisition of a 15 per cent stake in a firm by persons other than the founder or the founder-group would trigger a mandatory open offer for a further 20 per cent. If that happened, then Orchid’s current management would have had to give up control to Ranbaxy. Therefore, the business alliance with Ranbaxy could put an end to Orchid’s fear for now.

On the other hand, Ranbaxy has similar strategic stakes of just under 15 per cent in other pharma companies, including Krebs Biochemicals and Industries Ltd and Jupiter Bioscience Ltd. Explaining the rationale for such investments, Mr Singh said, “The global pharma market is changing. All the top 15 pharma companies globally have restructured their business in order to take on the changed scenario. We see consolidation happening in India also wherein we are looking for multiple products and in multiple markets through such strategic partnerships and alliances.”

On the alliance with Orchid, Mr Singh said the companies were looking to leverage on each other’s strengths with Orchid having strong presence in antibiotic cephalosporin formulations. “Orchid is a niche player in the global pharmaceutical industry with an impressive track record, particularly in sterile products. We are pleased to enter into this long-term strategic alliance with Orchid. The agreement will be mutually beneficial and synergistic, allowing both organisations to leverage each others inherent strengths.”

Commenting on the alliance, Mr K. Raghavendra Rao, Managing Director, Orchid, said, “We are happy to join hands with Ranbaxy, India’s largest pharmaceutical company. Ranbaxy’s global scale and market reach and Orchid’s advanced development and manufacturing capabilities would expand the business of both companies. We believe that this will be a win-win arrangement for both companies”.

Our Chennai Bureau reports: Mr Rao, told Business Line that both companies have discussed the ‘business aspect’ of Ranbaxy acquiring a significant stake in Orchid Chemicals. There have not been any discussions on equity-related issues and management aspects, he said in response to a question.

The business alliance will have a significant impact on the top line and bottom line of both companies. While the specific nature of the alliance is yet to be finalised, the companies are looking at leveraging their individual strengths — Orchid’s on development and manufacture and Ranbaxy’s market reach, Mr Rao said. The arrangement is based on product and market specific co-operation, he said.

Orchid’s share price closed at Rs 248 at close on Tuesday compared to Rs 249 on the previous day.