Sun Pharmaceuticals of India Said to Eye Germany’s Stada By With assistance from Adi Narayan - Aug 2, 2012

Sun Pharmaceutical Industries Ltd. (SUNP), India’s largest drugmaker by market value, is looking for acquisitions in Europe including a possible takeover of German generic-drug maker Stada Arzneimittel AG (SAZ), people familiar with the matter said.

Sun has sought to raise about $1 billion for a European deal, said one person familiar with the matter, who asked not to be identified as the process is private. Company executives recently toured Europe to meet with potential targets, another person said.

Sun’s billionaire founder, Dilip Shanghvi, has followed a strategy of acquiring under-performing or unprofitable companies and merging their operations into the Mumbai-based drugmaker. Sun bought controlling stakes in 10 companies in the past 14 years, including the acquisition of a majority stake in Israel’s Taro Pharmaceutical Industries Ltd. (TARO)

“We believe that Sun may look at larger-size acquisitions going forward,” Saion Mukherjee and Aditya Khemka, Mumbai-based analysts for Nomura Holdings Inc., said in a May 31 report.

Stada, based in Bad Vilbel, Germany, fell 6.3 percent to close at 23.95 euros in Frankfurt trading yesterday, giving the company a market value of 1.4 billion euros ($1.7 billion). The stock declined after Deutsche Bank AG said the company will report “slightly weaker earnings momentum” next week and cut its stock-price prediction to 32.5 euros from 34 euros. The decline pared the stock’s gain this year to 24 percent.

Stock Gain

Sun fell 0.6 percent to 655.9 rupees in Mumbai trading yesterday, valuing the company at 675 billion rupees ($12 billion). The stock has climbed 32 percent this year, compared with a 24 percent return for the 17-company BSE India Healthcare Index.

A spokesman for Sun said the company wasn’t in talks to buy Stada. A spokesman for Stada declined to comment on a potential deal.

Sun has about $927 million of cash reserves and may seek acquisitions to broaden its geographic breadth or enhance its presence in the U.S., according to Nomura.

A Sun acquisition of Stada would be “a surprising deal” if the Indian company’s main goal is to grow in the U.S., Odile Rundquist, a Geneva-based analyst for Helvea SA, said in a telephone interview yesterday. “I don’t really see the attraction,” Rundquist said. She has a neutral rating on Stada’s shares.

Sales in Europe

The Mumbai-based company began exporting drugs to Europe in 2010. Last year, 42 percent of the company’s sales were branded drugs in India, 39 percent were generic medicines in the U.S. and 11 percent were branded generics in other regions including Europe, according to its 2011 annual report.

Sun’s chairman is Israel Makov, a former chief executive officer of Teva Pharmaceutical Industries Ltd. (TEVA) who helped build that company into the world’s biggest generic-drug company.

Nearly 96 percent of the 1.72 billion euros that Stada receives from medicine sales came from Europe, with Germany and Russia being the two biggest markets, according to its 2011 annual report.

Stada would consider merging with a similar-sized branded or biotechnology drugmaker, Chief Executive Officer Hartmut Retzlaff said in October. The company has been the subject of takeover speculation in the past, and the acquisitions of similar-sized competitors Ratiopharm GmbH and Actavis Group hf have widened the gap between it and generic-drug industry leaders.

Stada acquired Serbia’s Hemofarm Koncern AD in 2006 for 480 million euros, the company’s biggest acquisition and part of a push to shift manufacturing capacity as well as sales into eastern Europe. The company took a 96.9 million-euro writedown before taxes in the third quarter last year for unpaid bills from its Serbian business.

Pharmacists and doctors own about 12 percent of the shares in Stada, which was founded in Dresden in 1895 as a pharmacists’ cooperative.