Dow Jones Newswires | Debt-laden drug maker Wockhardt Ltd. has
been forced to abandon the sale of its nutrition business to Abbott
Laboratories because of a dispute with some of its overseas lenders.

But the news was greeted positively by investors Thursday, as fears the
company would now struggle to repay loans were outweighed by
expectations it could get a better price for its nutrition business
from a new suitor.

Wockhardt’s shares initially jumped 4 percent before easing back to INR143.55 at 0908 GMT, up 3.50 percent and outperforming the benchmark Sensex, which was up 0.76 percent.

Abbott and Wockhardt Thursday said they jointly decided to terminate the deal, which would have seen the U.S. company pay about $130 million for the part of Wockhardt’s business that includes infant formulas, weaning foods and adult protein supplements.

The deal was first announced in July last year.

Abbott said in a statement that the decision was prompted by Wockhardt’s inability to resolve debt restructuring issues with some of its lenders.

Mumbai-based Wockhardt has been locked in a tussle with some overseas banks and holders of its foreign currency convertible bonds over the repayment terms of certain liabilities.

Wockhardt last year opted for a debt-recast program–where lenders give up some of their recovery claims and reschedule repayments–as the global economic downturn hampered its efforts to raise funds through other means. Wockhardt’s finances were also hit by unfavorable currency bets and high financing costs.

Barclays, Calyon, QVT Advisors Pvt. Ltd.–an entity representing about 40% of the holders of Wockhardt’s overseas convertible bonds–were among those who opposed the debt-recast program, saying it favored the company’s Indian lenders.

But the majority of Wockhardt’s lenders approved the plan, which required the company to divest its non-core businesses to raise up to INR7.30 billion to repay lenders over the next six years.

The opposing overseas lenders have petitioned the Bombay High Court, which is reviewing the case, effectively blocking the nutrition business deal with Abbott.

A Wockhardt spokesman told Dow Jones Newswires in January that–including the nutrition business–the company had either completed or was in the process of completing divestments amounting to INR6.80 billion.

Besides the nutrition business, Wockhardt last year agreed to sell its German business, Esparma, to a unit of Lindopharm GmbH, while it also agreed to sell its animal health division to France’s Vetoquinol (VETO.FR).

Another spokesman for Wockhardt said Thursday that these other deals were going ahead as scheduled as there was no opposition to them.

HDFC Securities analyst Ranjit Kapadia said investors are now probably betting on Wockhardt grabbing a better deal for its nutrition business thanks to a revival in global mergers and acquisitions activity.

But another analyst from a Mumbai-based brokerage, who declined to be named, said the news was “clearly a negative” as the aborted deal would weigh on Wockhardt’s debt restructuring plans and could also make potential suitors wary of doing a deal with the company.

Wockhardt had net liabilities of about INR34 billion as of Dec. 31, 2008. By Rumman Ahmed, Dow Jones Newswires; 91-9845104173; rumman.ahmed@dowjones.com