Just what the doctor ordered?

Amidst speculation and apprehension of an intense takeover battle, the Kolkata-based Rs 600-crore fast-moving consumer goods (FMCG) major Emami Ltd has acquired a 27.5 per cent stake in Zandu Pharmaceuticals Works.

Emami also announced an open offer to acquire up to 20 per cent more in the Mumbai-based Ayurveda specialty pharma company, at a price of Rs 7,315 per share (face value: Rs 100), a 2.49 per cent premium to the two-week average stock price). If Emami is successful with the open offer, its stake in Zandu would shoot up to 47.5 per cent.

This would make Emami the largest shareholder in Zandu with a stake of 47.5 per cent; this would be higher than the holding of one of the promoter groups of Zandu, the Parikhs, who hold 42 per cent in the pharma firm. The Agarwal-Goenka combine at Emami had got a foot into the Zandu door by buying out the entire 24 per cent stake of the Vaidya family, the other promoter group of Zandu, in end-May through a series of off-market deals. Emami forked out nearly Rs 130 crore for that stake, paying Rs 6,900 per share (including a noncompete fee of Rs 100 per share).

Says Harsha Vardhan Agarwal, Executive Director, Emami: “We will share management control with the Parikhs. We will be working together with the Parikh family for the future growth of Zandu. Our objective is to take the company to the next phase of growth and we will do everything to achieve that.” A small problem with that plan is that the Parikh family may not exactly be keen on it. “The board is yet to plan any action so far. I cannot talk on the issue unless there is a board meeting,” says Girish Parikh, Managing Director, Zandu Pharmaceuticals. The board meet was to take place on June 10.

Emami has been keen to grow inorganically. It had acquired Himani Ltd a decade ago, but last year it unsuccessfully bid for Indonesian company Unza, which was finally taken over by Wipro.

Emami has in its portfolio haircare and skincare products such as Navratna oil, Boroplus antiseptic cream and Fair and Handsome cream. Zandu, on its part, has popular herbal and Ayurvedic brands like Zandu Balm, Zandu Special Chyawanprash, Kesri Jeevan. Says Agarwal: “Zandu has tremendous business potential, which can be exploited with strong marketing, R&D and other operating efficiencies coupled with long-term entrepreneurial vision. Emami with its strong marketing acumen and operational efficiency can help Zandu reap its true potential. There is strong synergy between the business of Emami and Zandu. If Emami and Zandu’s respective expertise are combined, it can reach greater heights.” Zandu shareholders—including the largest one—have to agree. As Agarwal adds: “Right now we hardly have anything to do but to wait for the outcome of the open offer.” However, with the Zandu stock price at the time of writing still at a huge premium of 29.25 per cent to the open offer price, the possibility of small shareholders unanimously biting seemed remote.

A likelier option for Emami is to compel the Parikhs to sell by offering them a juicy premium. Expect more drama in the days ahead.