In a parting gift, Cabinet clears KKR's Rs. 1,400-crore pharma FDI proposal.

In what is being seen as one of the last big decisions on investment by the UPA-II Government, the Cabinet Committee on Economic Affairs recently approved a foreign direct investment proposal by private equity major KKR to acquire stakes in two pharmaceutical companies for Rs. 1,434 crore.

Last November, KKR had announced a $200-million deal to acquire 37.98 per cent stake in Hyderabad-based Gland Pharma. The Cabinet cleared the proposal, under which Singapore-based KKR Floorline Investments, a part of KKR, will acquire about 38 per cent of Gland Pharma, including the entire stake held by Evolvence India Life Sciences Fund.

Gland Pharma develops and manufactures generic injectables primarily for the US, as also for India and other semi-regulated markets. It also produces active pharmaceutical ingredients.

The Cabinet also cleared another proposal under which KKR Floorline will acquire a 24.9 per cent stake in Gland Celsus Bio Chemicals, an investment holding company and one of the promoter entities of Gland Pharma, holding a 17.70 per cent stake in the company.

Gland Celsus is also likely to subsequently increase its stake in Gland Pharma to 30.24 per cent. Together, the two deals are estimated to be worth about Rs. 1,434 crore. Since the deal involved multiple transactions, it had also come under the radar of the Competition Commission of India (CCI). However, the watchdog did not have any issues and gave its nod in January this year.

The proposals had, however, faced opposition from the Department of Industrial Policy and Promotion (DIPP), as they contained a non-compete clause prohibited by the FDI policy in brownfield pharma deals.

Non-compete clauses are incorporated in deals where sellers agree not to launch a similar venture in the same domain. This is to safeguard the interest of buyers, since in the absence of such a clause the seller can start afresh with a new plant and possibly even hire employees of the firm that was sold.

HBL