Debt-laden pharmaceutical company Wockhardt continued its asset selling spree, handing over its nutritional foods business to Abbott. The US pharmaceutical company will pay $130mn or Rs 627 crore, for the business which will be distributed between Wockhardt, Carol Info Services, some subsidiaries of Wockhardt and associate companies. Recently, Wockhardt had got approval from the Corporate Debt Restructuring Cell of its banking consortium for a restructuring package.
It has to sell some of its non-core businesses to raise cash to pay off debts. The amount that Wockhardt itself will get is not known yet. The total consideration has been disclosed by Abbott but Wockhardt has not mentioned the consideration in its statement to the stock exchange. It has Rs 1,414 crore of debt coming up for repayment during 2009.
Wockhardt has got a good price for its nutritional food products business. It has brands like Farex, Dexolac and Nusobee in infant formula and Farex also has a weaning cereal variant. Another brand Protinex is a market leader in the protein supplement market. The turnover of this division is not known as of now. Wockhardt does not report its segment results, classifying all pharmaceutical and nutritional products under one segment.
The Farex and Protinex brands belonged to a Dutch company Royal Numico NV, which Wockhardt acquired in 2006 for an undisclosed consideration. At that time, both brands had a turnover of about Rs 60 crore and its own products had a similar size, amounting to about Rs 120 crore. In the intervening three years, if we assume a compounded annual growth rate in the range of 10%-30%, we get a figure of Rs 160-Rs 263 crore. That translates to a valuation of 4 to 2.4 times sales (dividing Rs 627 crore by the sales figure).
The cash inflows to Wockhardt will be used in accordance with the debt restructuring package that has been worked out. While these divestments will make Wockhardt a financially stronger company, the divestment of the nutrition products business robs it of a business with a lot of potential. That is the only dark spot in this sale, otherwise it seems to have got a fair price for this division. Wockhardt recently sold its animal health business to French company Vetoquinol.
Carol Info Services (earlier known as Wockhardt Life Sciences) makes these nutrition products at its factories, as an outsourced function. The Khorakiwala family owns about 64% of the shares in this company, which is a listed company. Abbott will be paying this company separately for the factories it owns.
Abbott is already selling brands that have some overlap with Wockhardt’s products, but it will get a strong portfolio of products. Abbott sells products like Isomil (infant formula), Pediasure and Ensure. Abbott is not involving its Indian listed subsidiary Abbott India in this transaction. That will be a disappointment for shareholders. However, it may choose to distribute the products through its Indian subsidiary, which will be some consolation.