US-based generic pharma company Mylan Labs will pick up about 71.5 per cent stake in Matrix Labs (See: Mylan Labs to acquire Matrix Labs for $736 million). The two pharma companies will proceed with the deal that was being negotiated for at least three months reports CNBC-TV18.

The management of Matrix Labs says that the promoters in Mylan will invest part of the proceeds. N Prasad, executive chairman of Matrix, will invest $25 million, Newbridge $93 million and Temasek will invest $46 million in Mylan.

According to the management, Mylan will look to take shareholding to 71.5 per cent and will announce an open offer soon as it has no plans to delist. The management feels that the generic API biz will strengthen after this deal, which derisks business.

CNBC-TV18 shares with domain-b its exclusive interview with Matrix CEO Rajeev Malik:

What could this deal mean for Matrix's minority shareholders?
I think as far as minority shareholders are concerned, nothing much will change because going forward, the company will be operating on an independent and arm length basis. It will be a listed company and from a business point of view, it will be much more stronger and will de-risk business for Matrix and Matrix shareholders.

What would be the eventual shareholding pattern between Mylan, the private equity investors, the promoters and minority shareholders?
In terms of the shareholding pattern, I think Mylan will be looking forward to take it up to 71-71.5 per cent. There will be no private equity investors going further. There is no agenda of delisting Matrix as of today. There has been no discussion so far and I do not see anything as far as de-listing coming through.

How keen is Mylan at this point to go ahead with the open offer and raising the stake to 71.5 per cent? Do you think they will be comfortable with whatever they have got in terms of a stake sale from you?
They will be announcing the open offer very soon. And they will definitely want to go ahead and go up to 71 per cent.

Aside from business synergies, financially what might this do for Matrix? Have you done any collation of any sort of how it might improve your financial performance on a top and bottom line basis?
With Mylan, there are hardly any overlaps as far as the synergies are concerned. We are hardly doing any business with Mylan today. So from tomorrow, whatever business we start putting up with Mylan will be accretive to the business. So the business should look upwards.

This was one of the key objectives of Matrix when we were looking into how would we align with a bigger US player. One has seen consolidation in the industry as well as the front-end after Teva bought out IVAX, Sandoz bought out Eon and Hexal and with Watson going for Andrex. So front-end has been shrinking whereas if one looks at the backend, there has hardly been any consolidation in API players in India. So we think that this is a very strategic initiative and it places us at a significantly better position than where we were yesterday.

Could you be a little more specific, because for a lot of shareholders, the call would be now on whether to stay invested in a company, which will not be a big partner in Mylan or to tender their stock at Rs306 per share.
With Mylan and Matrix going along, we had worked out a strategic business plan with four key components, which was generics API, FTF, which is the Docpharma business in Europe and the third business, was the anti-retroviral and finally, the CRAM (Contract Research & Manufacturing) business.

All the four key business lines are pretty intact. In fact, generics API will strengthen after this deal. So I think from the business point of view, I reiterate the point that there are no apprehensions and risks, which shareholders should have in their mind.

But again, at the end of day, it is the shareholders' call whether they would like to tender it in a public offer or whether they would want to stay invested.

Could you give us the details on the investment, which the promoters are now making in Mylan?
A part of the proceeds is being invested by three promoters in Mylan. N Prasad will invest about $25 million, Newbridge will invest about $93 million and Temasek will invest about $46 million. So these are the three promoters who are selling off their stake and are investing in Mylan as a part of the ongoing alliance.

How much debt is Matrix sitting on at this point?
Matrix has $200 million of long-term debt. Out of which, about $100 million is supposed to be paid within another six months. $100 million is a five-year term loan. So that's what we have on our books.

In terms of incremental revenue from Mylan, how much do you think will you start clocking by the start of the next financial year?
Once the deal is closed, we would be initiating some of the actions this year, which have already been identified, to capture the synergies. There are some low hanging, where hardly anything needs to be done to switch on. But there are others, which will take regulatory approval time of about 9-12 months.

But in other areas, for example in product development and leveraging some of the other manufacturing assets, it can start much before that. So we do not see much in this fiscal and we would see some of the accrual starting in the second half of FY08.