Wockhardt Amends Rs 1,850 Crore Deal With Dr. Reddy’s To Assess Covid-19 Impact
The board of Wockhardt Ltd. approved an amendment to a Rs 1,850-crore deal with Dr. Reddy’s Laboratories Ltd. for sale of select divisions of the Mumbai-based drugmaker’s branded generics business and a manufacturing facility to assess the impact of the Covid-19 pandemic on their valuations.
“In the aftermath of the pandemic and the consequent government restrictions, there has been a reduction of revenue from the sales of the products forming part of the business undertaking during March and April 2020,” Wockhardt said in an exchange filing.
The agreed consideration of Rs 1,850 crore will now be paid as:
- Rs 1,483 crore: on closing date under business transfer agreement.
- Rs 67 crore: deposited by the purchaser in an escrow account will be released subject to adjustment.
- Rs 300 crore: will be held by Dr. Reddy’s on the closing date for assessment of the Covid-19 impact. The “holdback amount” will be released as follows:
If revenue from sales of the products forming part of the business undertaking by Dr. Reddy’s during the 12 months post-closing exceeds Rs 480 crore, the Hyderabad-based drugmaker will have to pay twice the amount by which revenue will exceed, according to the filing.
In February, Wockhardt’s board considered and approved the transfer of businesses in India and a few other international territories of Nepal, Sri Lanka, Bhutan and Maldives through a slump sale to Dr. Reddy’s. The business comprises a portfolio of 62 brands in multiple therapy areas such as respiratory, neurology, VMS, dermatology, gastroenterology, pain and vaccines along with related sales and marketing teams; and the manufacturing plant located in Baddi, Himachal Pradesh, with all plant employees.
But due to the Covid-19 pandemic, the approval of transfer of land is pending from the Government of Himachal Pradesh, the filing said. Wockhardt and Dr. Reddy’s have agreed that the Baddi facility shall only be transferred once the state’s approval is received. In the meanwhile, they will enter into interim arrangements for management of the plant by Dr. Reddy’s, the filing said.
Wockhardt in February had said the businesses being transferred reported revenue from operations worth Rs 377 crore for the nine months ended December 2019. That was around 15% of the drugmaker’s business. Wockhardt, in its fourth-quarter earnings filing, classified the business as “discontinued operations”, and its identified assets and liabilities and assets and liabilities of Baddi plant are classified as “assets held for sale”.
The intended sale of business portfolio came as Wockhardt looks to raise cash for fresh investments and pare debt. It was also in line with the company’s strategic plan to shift from acute therapeutic areas to more chronic business like anti-diabetes, central nervous system and to its niche antibiotic portfolio of new chemical entities.