A spoonful of sugar

Clever structuring sweetened Abbott’s acquisition of a division of Piramal. Yet, the success of the deal may prompt new FDI caps in the pharmaceutical sector

Raghavendra Verma reports from New Delhi

In May 2010, Abbott Laboratories, a US pharmaceutical company, revealed that it was buying the domestic formulations business of Mumbai-based Piramal Healthcare for US$3.72 billion. The purchase price was 31 times Piramal’s earnings and nine times its annual sales, meaning that Abbott was effectively paying more than twice what Daiichi Sankyo had paid in June 2008 for a controlling stake in Ranbaxy.

“It was a large valuation, but our investment was never intended to be on a short-term perspective,” Michael Warmuth, Abbott’s senior vice-president, told Mint after the deal closed on 8 September. “In fact, there was a scarcity for such assets in the emerging markets, including India. So the price was quite justified.”

Warmuth added that Abbott had evaluated three factors when considering Piramal as a target: the cultural fit between the two companies, Piramal’s portfolio of established brands and the quality of its management.