US-based Avenue Capital, a hedge fund that focuses on distressed and undervalued debt and equity opportunities, is in an advanced stage of negotiations to pick up an equity stake in Delhi-based loss-making pharma company Morepen Laboratories. Sources indicated that Avenue Capital could pick up 15% stake for around Rs 80 crore, and the deal which is expected to be completed by the middle of this month.
The fund is offering Rs 20 per share of Morepen Labs, which works out to a 28% premium to Friday’s market price of Rs 15.6. However, it is about 40% higher than the share price when negotiations between the two began.
Sources close to the deal also said Avenue has the option to subscribe 5% more of the equity by way of warrants in the future. For this, they will have to make a down payment of 10% of the agreed price upfront, while the remaining will be paid up in 18-months. This will trigger off the mandatory requirement of an open offer.
Currently, Morepen’s equity base is of about 21.1 crore shares. If Avenue’s stake goes up to 20%, the number of shares will go up to 37.06 crore shares including the warrants made to promoters and investors. The company has issued 75 lakh shares or 3.43% to banks under a debt restructuring settlement at the same rate. This will result in a promoter holding of about 46%.
Read more in The Economic Times article.
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