M&A Critique
Strides-Shasun Combining to Accelerate Strategy And Growth

Strides-Shasun Combining to Accelerate Strategy and Growth

On 29th September 2014 Board of Directors of Strides Arcolab Limited (‘Strides’) and Shasun Pharmaceuticals Limited (‘Shasun’) announced that both companies have approved Scheme of Amalgamation between the two companies. This Combination creates a vertically integrated pharma company  with strong presence in regulated market of Finished Dosage Formulations (“FDF”), emerging markets branded generics, institutional business, Active Pharmaceutical Ingredients (“APIs)”, Contract Research and Manufacturing Services (“CRAMS”) and a nascent Biotech Business

The Scheme of Amalgamation :

Proposed combination with Shasun will accelerate strategy and growth prospects of Stride by creating a larger scale, fully integrated, leading Indian pharma company with multiple growth drivers and synergies that will allow for enhanced profitability and more efficient use of their combined infrastructure and enhanced value creation opportunities for the shareholder group. Strides have a good track record of creating shareholder value.

The transaction is to be executed through a Scheme of Amalgamation wherein Shasun will be amalgamated with and into Strides.

Pursuant to the Scheme of Amalgamation

  • Each equity shareholder of Shasun will be entitled to receive 5 (five) equity shares of Strides in lieu of 16 (sixteen) equity shares held in Shasun.
  • Based on the Exchange Ratio, Shasun shareholders will own 26% of the combined entity.
  • The current promoters of Shasun will, post the approval of the Merger, be categorized as promoters of the combined entity, along with the existing promoters of Strides.
  • The board of directors of the combined entity will comprise of independent directors in compliance with the provisions of the Listing Agreement, with promoters of Strides and the promoters of Shasun having the right to nominate non-independent directors in proportion to their inter-so shareholding in the combined entity.
  • The promoters of Strides and Shasun have agreed to vote in favour of the scheme in the court convened meeting

The transaction is expected to close by June 2015, subject to receipt of all approvals.

S.R. Batliboi & Co. LLP and Price Waterhouse & Co. LLP provided the joint valuation report on the fair exchange ratio. Jefferies India Private Limited provided the fairness opinion to the board of Strides, whilst IDFC Securities Limited provided the fairness opinion to the board of Shasun. Amarchand & Mangaldas & Suresh A Shroff & Co. and DSK Legal acted as the legal advisors for the transaction.

About Strides Arcolab Limited :

Strides Arcolab, incorporated in 1990 is a first generation pharmaceutical company which is listed on the Bombay Stock Exchange Limited and National Stock Exchange of India Limited. Registered office of the company is situated at 201, Devavrata Soc 17, Vashi, New Mumbai – 400 705.

Strides is a global pharmaceutical Company having headquartered in Bangalore, India that develops and manufactures a wide range of IP-led niche pharmaceutical products and it is world’s largest soft gelatin capsule manufacturers.

Pursuant to Scheme of Amalgamation of Global Remedies Limited and Grandix Pharmaceuticals Limited and Grandix Laboratories Limited and Quantum Remedies Private Limited with Strides Arcolab Limited in 2009 the company has issued 13524 Equity Shares of Rs.10/-each.

The Company successfully completed the Agila divestment to Mylan that could create value for the shareholders and employees by distributing a significant portion of the monetised value. After monetising the value created at Ascent Pharma-health and Agila Specialties, the Company will now focus on growing their core pharma business and successfully executing their planned investments in biogenerics.

The Company has 8 manufacturing facilities and presence in more than 75 countries in developed and emerging markets.

As on 29th September, 2014 Stride announced that it has entered into an agreement with GMS Holding whereby GMS will invest USD 29.10 Million for a 25.1% Stake in Stelis Biopharma Private Limited, the biotech arm of stride to fund its Greenfield project.

Financial Data of Stride:                                                                         (Rs. in Million)

Particulars Quarter ended June 2014
Revenue 226.28
Net Profit after Tax 26.80
EPS 4.50

About Shasun Pharmaceuticals Limited :

Shasun Pharmaceuticals Ltd (Formerly known as Shasun Chemicals and Drugs Ltd.) was incorporated in 1976 which is listed on the Bombay Stock Exchange and the National Stock Exchange of India Limited having a head office in Chennai India with locations in India, UK, and the USA. Shasun is an integrated, leading global supplier of development and manufacturing services for intermediates, API (Active Pharmaceutical Ingredients) and Formulations to the Pharmaceutical Industry. Shasun has successfully completed both US FDA and Mexican COFEPRIS (Mexican Regulatory Authority) inspection at its API facility at Cuddalore Tamil Nadu, India

Shasun is to offer a full range of development and manufacturing services for intermediates, API, and formulations, covering the entire lifecycle of a product at any scale – from grams to tonnes – from pre-clinical to validation and commercial supply, with all the associated supporting services. The Company is a total service provider offering services right from the discovery stage to commercial manufacture and formulations. The company is having Over 35 years experience and demonstrated performance in serving the Pharmaceutical industry.

With a strong leadership base in the USA spearheading global expansion, the Company is poised for strategic forays through dedicated ground presence and appropriate partnering initiatives We believe we are ready to undertake a  transformation to become a Globally Integrated Pharmaceutical Company enabled by partnerships, and reliable innovation to deliver differentiated, affordable health care to patients worldwide while returning greater value to all stakeholders.

Shasun is

an award-winning pharma solutions provider that aims to be a preferred partner for drug substance and drug product development and supply.

  • A truly global company from India with a global asset base that welds the best of the East and the West.
  • A pharmaceutical contract organization with demonstrated capabilities of manufacturing and development at every scale across the whole drug cycle.
  • A research and technology-driven innovator in biotechnology, nanotechnology, bulk substance and generic drug development and manufacturing.
  • A fully integrated drug lifecycle manager that meshes research, engineering solutions, process development, project management and logistics to efficiently deliver products.
  • A brand presence in the area of health solutions and initiative

In 2012 Sasun has crossed Milestone turnover of Rs.1000 crores Formulation capacity expands to five billion USD. In 2013 it received NEPIC UK Award for innovation and Silver Award by Pharmaexil for highest export in large scale category. In 2014 it acquired global rights of “Nuprin” brand

Financial Data of Shasun :                                                                                (Rs. in Million)

Particulars Quarter ended June 2014
Revenue 252.27
Net Profit after Tax 3.66
EPS 0.63

Rationale of the Scheme:

  • Creates a vertically integrated pharma company of scale with a strong presence in front- ended regulated market FDF, emerging markets branded generics, institutional business, APIs, and CRAMS.
  • Significantly enhanced regulated market FDF portfolio in Rx and OTC in niche and complex segments.
  • Significant strengthening of the institutional business via vertical integration benefits.
  • De-risked business model with significantly enhanced operational infrastructure of scale
  • Catapults Merged Entity to amongst the top 15 listed Indian pharma companies by revenue.
  • Significant scope for synergies leading to value creation for all stakeholders.


Vertically Integrated Merged Entity with Diversified Revenue Streams across Geographies

  • Merged Entity had revenues of INR 24,795 million and EBITDA of INR 3,784 million of June 30, 2014

Derisked business stream across verticals:

Particulars Strides Shasun Merged entity
Emerging Markets Brands 26% 12%
Institutional Business FDF 37% 48%
Regulated Markets FDF 37% 16% 26%
CRAMs 25% 23%
API 59% 31%

Geographically Diversified Revenue Stream

Particulars Strides Shasun Merged entity
America 7% 34% 21%
Europe 21% 23% 22%
Global Institutional Sales 37% 18%
Emerging Markets including India 27% 28% 28%
Asia Pacific including Australia 8% 13% 7%
Others 2% 4%
Shareholding Pattern of Stride, Shasun & Merged Entity as % of Total No. of shares:
Particulars Stride Shasun Merged Entity
 Promoter and Promoter Group 27.67 39.23 34.1
Institution 50.73 21.22 42.2
Others 21.6 39.55 23.7
Significant Scope for Synergies Leading to Value Creation for All Stakeholders
  • Merged Entity to cross-leverage the existing relationships across API and regulated markets formulations business
  • Benefit from large scale and wider geographic reach.
  • Synergies to be realized through workforce optimization across business functions
  • Benefit from cost savings in corporate expenses, operational expenses, and R&D expenses
  • Benefit from sharing of the facilities thereby reducing capital expenditure
  • Complementary R&D capabilities – More than 100 products under development with only one overlapping product.
  • Other potential synergies expected on account of reduced taxes for the joint entity would lead to further value creation for the Company.

After the amalgamation of Shasun into Stride, merged entity will be competitive with Cipla & Aurobindo by virtue of Vertical Integration.


Amalgamation will result in

  • Formulation Development and R &D Scientist have been doubled in the merged entity of Strides as compared individual entity of Stride.
  • Merged entity of Stride will gain Process Chemistry R&D Scientists from Shasun.
  • The capacity of Manufacturing and Other Employees of Merged entity of stride has been doubled.
  • Merged entity of Stride will gain one more FDF Facilities – US FDA Approved as compare to Two before Amalgamation.
  • Merged entity of Stride will gain Two API and One new CRAMS Facilities – US FDA Approved.
  • There is no change in Emerging Market Facilities of Merged entity of stride.

This has definitely a positive impact on the valuation and stock prices and it seems synergy will enhance overall valuation of the Company. We believe that this amalgamation will augur well for both the companies.


M & A Critique