Merck Generics is currently one of the largest generic players globally with annual revenues of €1.8 billion and operating profits of €238 million for 2005. It has a presence in more than 90 countries and is a market leader in Australia, France and Scandinavia in the generics segment.

It has a product portfolio of over 400 drugs across various therapeutic segments and employs more than 5,000 people globally. Merck had merged its US subsidiary Dey Inc with the Generics division in 2004 to strengthen its position in the US market.

Merck had announced its intention to divest Merck Generics last week, possibly to fund other acquisitions. A statement from the company said it has not yet started any discussions with potential buyers. "In light of the far-reaching changes occurring in the market we are considering as an option the divestiture of Merck Generics to a qualified buyer", Merck chairman Michael Roemer was quoted in the statement.

Merck is a leading European pharma and chemicals company with 2005 revenues in excess of €5 billion. US pharma giant Merck & Co was spun off from the German parent in 1917 and the two companies have worked completely independent ever since.

If successful in its bid, Ranbaxy would become one of the top-3 generics companies globally with annual revenues in excess of $4 billion. The company is likely to team up with private equity investors for the bid, as it would be difficult to raise sufficient funds all alone for such a large deal.

Ranbaxy would also have to contend with other potential bidders as Merck Generics is a prized asset for its wide product range and market reach. Potential bidders include Israeli major Teva, Swiss company Novartis which runs its generic business under Sandoz and Watson Pharma.

Generics are copies of drugs which have gone off-patent. They are sold at considerably cheaper prices as compared to the original patented products and hence have higher growth rates. The global generics market is currently estimated at around $50 billion and is expected to grow to over $90 billion by 2010.

After enjoying very high margins for many years, generic players have been affected by lower realisations over the last couple of years as competition intensified. This has led to a consolidation wave in the industry with many major deals concluded in recent years.

The biggest deal of all was Teva's over $7.5-billion acquisition of Ivax to retain its position as the largest generic player globally. Novartis and Watson have also concluded major acquisitions in recent years.

Ranbaxy has also been on an acquisition spree in recent years. The company completed as many as five acquisitions last year including Romanian company Terapia and the generic businesses of Glaxo SmithKline in Germany and Spain. Ranbaxy's major domestic competitor Dr. Reddy's had acquired German generic company Betapharm for over $600 million while US-based Mylan Laboratories recently acquired Indian generic manufacturer Matrix.