Novozymes to acquire the enzyme business of Biocon, India
Novozymes A/S (“Novozymes”) has today signed a definitive agreement under which it will acquire the enzyme activities of Biocon Limited (”Biocon”), Bangalore, India. Novozymes does not currently hold any stake in Biocon.
The total consideration to be paid to Biocon will be Indian Rupees equivalent of USD 115m. The purchase price has been agreed to USD 102m, of which USD 97m will be paid up front, and USD 5m when certain business targets have been met. In addition USD 13m is related to committed service fees and lease payments to be paid over a period of up to ten years. The purchase price amounts to approximately DKK 551m on a cash and interest bearing debt free basis and corresponds to around 4 times FY2006/2007 realised sales.
Biocon’s board of directors unanimously recommend the sale, which is subject to certain limited conditions normal in a transaction of this nature including the approval of Biocon’s shareholders. Shareholders representing around 60% of the total shares have committed to vote in favour of the transaction.
“The acquisition of Biocon’s enzyme activities provides an important step for Novozymes in strengthening our position on the Indian market, which we believe has an attractive growth potential. The activities of Biocon have a good strategic fit to our existing enzyme business”, says CEO of Novozymes, Steen Riisgaard, “We see several interesting market opportunities combined with synergy potential, making this a very interesting acquisition“, he continues.
“We are pleased with the sale of our enzyme business to Novozymes. Novozymes has the strength and focus to continue expanding the business, providing high quality enzymes for the Indian market”, says Biocon’s chairman of the board, Ms. Kiran Mazumdar-Shaw. “At the same time Biocon can continue its strategic focus within the biopharmaceutical business.”
Conditions to and certain further terms of the Proposal
This transaction is subject to shareholders’ approval through a postal ballot. The postal ballot will be initiated shortly, having duration of 30 days. Approval of the transaction requires an acceptance from more than 50% of the votes cast via the postal ballot. Novozymes has secured undertakings to vote in favour of the transaction from shareholders representing approximately 60% of the total votes. The transaction is subject to a number of other conditions, including customary local regulatory authority approvals.
Strategic rationale and synergies
The strategic rationale for acquiring Biocon’s enzyme business activities includes:
- Strategic fit with Novozymes’ existing enzyme business, supplementing product range and geographical scope
- Acquisition of a strong Indian market position. The combination of Novozymes’ and Biocon’s enzyme activities will strengthen Novozymes’ position in the Indian enzyme market
- India is an attractive market with high growth rates in the past years. Enzyme use is still in its infancy with growing awareness of enzyme potential and benefits providing attractive growth perspectives
- Access to strong local application development and formulation capabilities
- Strengthening of Novozymes’ product portfolio and competitiveness within sales of enzymes for the juice and wine industries with Biocon’s pectinase product line
Novozymes actively entered the Indian enzyme market in 1987, and since establishing Novozymes South Asia Pvt. Ltd. in Bangalore in 1998, Novozymes has gradually increased its activities and asset-base in India. Currently, Novozymes is in the process of establishing local R&D facilities in Bangalore.
Synergies could potentially be found in the following areas:
- Improved capabilities to serve Indian as well as regional customers and increased distribution reach in India and neighbouring markets
- Expansion and complementation of product portfolios
- Integration or consolidation of supply chain operations
- Leveraging on Biocon’s and Novozymes’ local market understanding and R&D capabilities, new and/or locally adapted enzyme concepts could be created
- Leveraging on Biocon’s expertise within solid state fermentation technology (SSF), application knowledge and formulation capabilities
Biocon in brief
Biocon Limited is one of India's leading biotechnology companies, specialising in biopharmaceuticals, contract research, clinical research and enzymes. Biocon is located in Bangalore and is listed on the Bombay and the National stock exchanges in India.
In the fiscal year 2006/2007, enzyme sales accounted for approximately 12% of the revenue. Biocon is the leading enzyme player in India. The enzyme business includes a broad range of industrial enzymes, food additives and process aids. Further, Biocon holds a leading position in the global enzymes market for the juice and wine industries. The enzymes are partly produced by Biocon, partly in-sourced from other enzyme providers. The company primarily serves the Indian market. However, it also exports products to overseas customers. About 160 people are employed within Biocon’s enzyme business, where around 150 are expected to be transferred to Novozymes.
For the fiscal year 2006/2007 the enzyme sales amounted to approximately INR 1bn (DKK ~134m).
Integration of the acquired enzyme activities into Novozymes
The transaction is a purchase of the enzyme activities of Biocon, including the transfer of related tangible and intangible assets, liabilities and employees.
Biocon’s enzyme activities will be acquired by Novozymes South Asia Pvt. Ltd., a fully owned subsidiary of Novozymes, where as the activities as such will be integrated into Novozymes’ global enzyme organization. The continued production and formulation will happen at the Biocon site under lease and service agreements with Novozymes. Novozymes’ existing establishment of R&D facilities in Bangalore will not be affected.
Financial impact on Novozymes
The transaction is expected to be completed around October 2007.
The acquisition is expected to have a small negative impact on Novozymes´ financial result for 2007. Sales will be positively affected by approximately DKK 20-25m while the impact on EBIT is estimated to be slightly negative, reduced by transaction costs and inventory revaluation according to International Financial Reporting Standards (IFRS). Consequently, the financial guidance for 2007 remains unchanged following this transaction.
The acquired business is expected to have a long-term annual growth of more than 15% in sales. The EBIT-margin is expected to be at the level of Novozymes’ long term financial targets within a few years.
The acquired business will be consolidated with Novozymes’ relevant business areas and hence reported here going forward.
Novozymes will finance the transaction from existing financial resources available to the company.
The agreement was signed July, 18 2007 and will seek the approval by Biocon’s shareholders by a postal ballot. The postal ballot will be initiated shortly, having duration of 30 days. Novozymes and Biocon expect the business transfer agreements to be approved by the relevant Indian regulatory bodies. The transaction is expected to be closed around October 2007.
Financial advisers: SEB Enskilda and KPMG Investment Banking.
Legal adviser: Kocchar & Co.