MERIND LTD

Merind Limited was Incorporated in 1958 under the name Merck Sharp &

Dhome(India) Pvt. Ltd. on 4th November, with Merck & Co. Inc. USA holding 60% of capital and the principal of Indian shareholder  being Tata Sons, Ltd.  The company’ objects is to manufacture chemicals and pharmaceuticals.

Merind Limited was established with the financial and technical collaboration of Merck & Co. Inc. USA.  In1978 – Out of the total shares issued till date 10,80,000 shares were held by Merck & Co. Inc. U.S.A and its nominees. In 1980 – In 1985 – Merci & Co. Inc. USA offered for sale out of its holding  3,60,000 . No. of equity shares of Rs.10 each of the company at a prem. of Rs.3 per share.  Out of this 7,200 shares were reserved for preferential sale to business associates of the company.  The balance 3,52,800 shares along with the unsubscribed portion of the reserved quota, if any, were offered to the public. The object of the offer for sale of share was to reduce the foreign holding from 60% to 40%.  The Company established 18 new formulation for live stock and poultry and launched two new pharmaceutical formulations  Modact&libotryp.  Necessary approvals were received for the setting  up of a R & D facility at Bhandup.   – Merck & Co. Inc. disinvested their entire 40% holding in the Merind Ltd., in favour of Ewart Investments Ltd., representing Tata Sons Ltd., and Tata Associate Companies.

In March, Ewart Investments Ltd., offered for sale 7,20,000  No. of equity shares of Rs.10 each at a prem. of Rs.10 per share to the shareholders of the company in the ratio of 2:3. In 1994 – 18,00,000 Right equity shares issued (prem. of Rs.60; prop. 1:1) Another 90,000 No. of equity shares offered to employees (only 42,000 shares taken up).

Wockhardt has succeeded in acquiring Merind. The market reaction saw the scrips of both Wockhardt and Merind zooming up by 17 per cent and 50 per cent respectively from their pre-acquisition levels. The gain obviously has been higher for Merind because the acquisition price has come under scrutiny. At Rs 260 a share, Merind is costing Rs 46.8 crore to Wockhardt initially and a total of Rs 93.6 crore if it acquires 100 per cent of Merind at the same price. The outflow is immaterial for the zero interest, cash rich Wockhardt which has earmarked Rs 200 crore for acquisitions.

Wockhardt is a multi-product company with its main focus on formulations which contribute around 46.8 per cent. Diagnos-tics, agro-products and diet foods contribute around 17 per cent, while domestic intravenous fluids and bulk drugs account for 24 per cent of the sales. In bulk drugs, its star export product, Captopril, an anti-hypertension drug is facing severe competition from the time it has gone off-patent in 1996.

Merind limited product portfolio, with a virtual monopoly in Vitamin B12. The net effect would be synergy and broadening of Wockhardts product portfolio. Although, many of Merinds brands are under DPCO, Vitamin B12 is its one strong area which is expected to make the difference in terms of volumes. Tata Pharmas anti-malarial and anti-TB drugs will only serve to enhance its export base. Thus, its exposure in the therapeutic categories will go up from 29 per cent to 42 per cent and the combined turnover will push up to Rs 675 crore. This would include the sales of Wallis, which has analgesics, cold relief products, dental and stomach remedies, notably the OTC brands.

The story does not end with the turnover going up alone. Walliss acquisition implies a turnover to investment ratio of 1.9, while that of Merind is 1.5 (assumption: turnover of Merind Rs 140 crore and Wallis Rs135 crore). In terms of profitability, Merind is definitely less profitable than Wockhardt, contrarily, Wallis will contribute to valuable foreign exchange. This does not necessarily imply that the Merind acquistion can be written off as an overvalued one.

Wockhardts effort is a conscious strategy to increase its strength in high value areas of formulations in the domestic market and bulks in the export market. Merinds contribution to formulations will be to the tune of Rs 90 crore and this will push up the formulations contribution to 51.5 per cent to the Wockhardt-Merind combine. For, the shareholders, it is time to expect more lucrative returns from the company. Stay invested. Merind at Rs 230 is touching the acquisition price and investors can look at divesting.