By Nanda Majumdar

It has, finally, stepped up the charge to its target of 1K by 2K. On February 25, 1998, when Wockhardt's 56-year-old chairman, Habil Khorakiwala, did a volte-face, and quietly announced that his Rs 338.66-crore pharmaceuticals flagship had bought a controlling equity stake in the Rs 137.51-crore Merind, as well as the Rs 46.68-crore Tata Pharma, from the Rs 35,000-crore Tata Group, it hardly came as a surprise to anyone.

For at least a year, Merind has been up for sale. Following the recommendations of the consultancy firm he had hired, McKinsey & Co., the chairman of the Tata Group, Ratan Tata, 59, has been only too keen to exit from some non-core areas--like pharmaceuticals. With Wockhardt picking up a 50 per cent stake in Merind--and, consequently, Merind's 74 per cent stake in its subsidiary, Tata Pharma--Tata's sole surviving company in this business is the Rs 1,127-crore Rallis.

As for Wockhardt, its urgency to acquire critical mass appears to have driven it to the pharmaceuticals industry's favourite strategy: M&A. Not only does the acquisition of Merind double Wockhardt's sales to Rs 675 crore--against Rs 323 crore in 1996-97--it also widens its therapeutic coverage from 29 per cent to 42 per cent of the market. And in terms of retail offtake, org data propels Wockhardt--with a marketshare of 2.30 per cent--from 19th to No. 9 in this industry in 1997-98.

If Wockhardt's move was not unexpected, its acquisition price was. After all, the 18 lakh shares that Khorakiwala has acquired cost his company Rs 46.80 crore, with the Rs 260 per share he paid being higher than the bids of the other contenders for Merind, such as the Rs 731.43-crore Glaxo and the $7.27-billion Pharmacia Upjohn of the US, which offered Tata only between Rs 150 and Rs 170 per share. Furthermore, Wockhardt's open offer to buy out, at the same price, the remaining 32 per cent held by the public--an attempt to safeguard the Merind shareholder--more than caps the Securities & Exchange Board of India's norms, which compel the acquiring company to purchase only upto 20 per cent of the remaining shares.

While the acquisition of Merind will, all told, cost Wockhardt Rs 93.60 crore, the cash-rich company--it reported net profits of Rs 61.69 crore in the year ended June 30, 1997--won't miss it. Or will it? Don't forget, Merind does seem to come with a little baggage of its own. For one, there seems to be little synergy between the product portfolios of the three companies.

As much as 51 per cent of Wockhardt's sales come from its top five products in, largely, general practitioner-oriented segments: 9 per cent from antispasmodics (dextropropoxyphene) and analgesics; 14 per cent from pefloxacin; 10 per cent from its Zedex anti-cough range; and 8 per cent from dermatological anti-infectives.

The fact that these have grown at a rate of 18 to 20 per cent per annum in recent times--significantly higher than the industry average of 15 per cent--only underlines its strengths. On the other hand, although general practitioner-products like its Decdan range of steroids account for 15 per cent of Merind's turnover, Wockhardt expects to benefit primarily from the former's sales of Vitamin B12--of which Merind is the sole producer in India.

Moreover, the 1,400 employees that Wockhardt inherits from Merind will take its staff strength to 3,900 while a rival like the Rs 283.88-crore Pfizer has just 1,800 employees. Tackling the overheads that come with a 1:3 ratio in terms of Field To Other Employees--the global standard being 1:1--will not be easy. That Khorakiwala will grow in future through more takeovers is obvious from the Rs 200-crore kitty that he has created for the purpose. But Wockhardt will need to ensure that its appetite for acquisitions does not turn it obese.

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