Wockhardt deal with Abbott falls through as foreign investors cry foul

Drug maker Wockhardt's Rs630-crore deal for the sale of its nutrition business to Abbott has finally soured. The proposed deal had drawn the ire of Wockhardt's overseas lenders, news of which had reached the Bombay High Court.

Pharmaceutical and biotechnology major Wockhardt Limited and Abbott have jointly decided to terminate the nutritional business agreement signed by them in July 2009, the company said in a release.

The development, though is not being seen in industry circles as a major set back for the Mumbai-based drug company, Wockhardt may have to work overtime to settle the concerns of its unhappy overseas lenders, say analysts.
According to experts in the merger-and-acquisition (M&A) deals, the company would find it difficult to sell more assets or even re-negotiate a fresh deal for its nutrition business until it settles the issues.

Had the deal gone through, Abott would have gained the nutrition businesses of Wockhardt, Carol Info Services and certain other Wockhardt entities, as also nutrition manufacturing facilities located in Lalru and Jagraon. The deal had been valued at Rs630 crore ($130 million).

According to experts, in a business transfer agreement of this type, the seller is expected to fulfill certain conditions prior to the consummation of the deal and until then either no money changes hands or a token amount is retained in an escrow account by the buyer which is returned to the buyer if the deal were to fall through, they say.

At the centre of the overseas lenders' unhappiness lie Wockhardt's $110 million FCCB (Foreign Currency Convertible Bonds), which it said it would offer to buy back at a discount to the conversion price. The company, a year ago, had said this after it announced it's decision to go in for a corporate debt restructuring.
The company said those who did not intend to go for the buyback option would be offered an exchange of their bonds for preference shares, partly convertible in 2015 and 2018.
However, the foreign lenders resorted to legal action claiming the CDR process had been one-sided and that they had not been consulted. Wockhardt, which is exiting non-core businesses, sold off its animal health and German businesses last year. However, its deal on the nutrition business (with Abbott) came unstuck.