Strides Arcolab (STR) has received notification of claims from US-based Mylan pertaining to regulatory concerns over STR’s acquired Agila plant following a USFDA warning letter. While management intends to dispute the claims, it is confident that the US$ 200mn escrowed cash under the deal would be sufficient in the worst case scenario of these claims materialising. We expect this to be a long-drawn out arbitration process, and don’t assign any value to the pending cash balance.
STR sold off its injectables business, Agila Specialties (Agila), to Mylan for a consideration of US$ 1.75bn in Feb’13. In Sep’13, one of Agila plants received a warning letter from the USFDA, post which Mylan held back US$ 250mn from the deal consideration towards costs and expenses. Mylan also held back US$ 100mn towards regulatory expenses and another US$ 100mn towards potential tax contingencies Management is confident that the US$ 200mn escrowed cash would be sufficient in the worst case scenario of claims materialising (claim amount undisclosed).
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