Thursday, March 22, 2007

Massive Merck bids consolidate Indian growth

The world-class status of acquisitive Indian companies has been further underlined this week with battle breaking out in the pharmaceutical sector.

India's Cipla Ltd. and Torrent Pharmaceuticals are among a host of companies set to bid for Germany's Merck KGaA, a generic drug-making giant valued at around $7 billion.

If the deal for Merck's drug business goes to an Idian entity, it will be the biggest acquisition in the history of Indian pharmaceuticals, and more than three times the value of M&A deals in the sector in 2006.The pharmaceutical sector will build on its vast previous expansion – deals totalling $2.5 billion in 2006 compared with just $364 million the previous year.

But this week's developments will not only have an impact on India's budding pharmaceutical market, but on Indian business growth in general. The acquisition of Merck's generic drug business would propel the Indian company into the global league. This is another example of how Indian business opportunities have been nurtured through first-class skills and low-cost production. Domestic production costs in India are a staggering 50% less than in developed countries.

This deal is against the backdrop of the successful acquisition of Corus Group by Tata Steel; Hindalco Industries' acquisition of Novelis; and the ongoing bidding war for German wind turbine company REpower Systems between Suzlon Energy and French nuclear-reactor maker Areva.

As one of the last areas of uncharted territory for Indian M&A, a large-scale pharmaceutical acquisition seems to be the next logical step.

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