The stock of Bangalore-based pharma company Strides Arcolab, which made public its decision to merge the Chennai-based Shasun Pharma with itself, gained 11 per cent last week. The expectation of a special dividend of about ₹100 a share aided the rally.
Strides will receive $150 million from Mylan Inc, in full settlement of the $250 million due, following the sale of Strides’ subsidiary, Agila Specialties, to the latter in February 2013. The company’s announcement that it will seek board approval to distribute $130 million (of the $150 million) as dividend came as a shot in the arm for the stock.
GMS Holdings’ decision to pick up a 25.1 per cent stake in Strides’ biotech arm, Stelis Bipoharma, for $21.9 million was yet another positive.
The merger is likely to be margin dilutive in the short term, given that Shasun’s consolidated operating margin for the June quarter stood at 5.4 per cent, just about a third of Strides’ 15.8 per cent margin.
Strides will have to issue fresh equity — five shares for every 16 shares of Shasun; this is likely to result in over 31 per cent dilution in the former’s equity capital.
Though the transaction is likely to be earnings-dilutive in the near term, one cannot rule out synergies in the long term; Shasun’s US Food and Drug Administration-approved active pharma ingredient facilities may help Strides’ US business.