56 Business The EconomistAugust 3rd 2019
“I
have failed” and “I gave up” were
the six most wrenching words in a
letter believed to be written by V.G. Sidd-
hartha, an Indian entrepreneur whose
body was fished out of the Netravati
River on July 31st. The signed suicide
note was released by his company, Coffee
Day Enterprises. It described unrelenting
pressure from investors and creditors, as
well as harassment from tax authorities.
Café Coffee Day, the chain Mr Sidd-
hartha founded in 1996, has 1,700 outlets
in India—ten times the number of Star-
bucks shops in the country. They serve as
a second home to many thanks to rea-
sonable prices and comfortable, if worn,
seats. Their ubiquity made Mr Sidd-
hartha one of India’s most recognisable
bosses. He was liked and respected in
business circles, having amassed a for-
tune of hundreds of millions of dollars.
Earlier this year he scored a coup by
offloading a long-term holding in Mind-
tree, a technology company, to Larsen &
Toubro, a conglomerate. Mindtree’s
founders felt betrayed by his willingnessto sell out to an unwanted buyer. In
hindsight, it appears he had little choice.
Coffee Day sat atop a pile of debt,
much of which Mr Siddhartha personally
guaranteed. Six months ago he took out a
loan from a friend, to help repay lenders.
“I could not take any more pressure from
one of the private-equity partners forc-
ing me to buy back shares,” he wrote,
without naming the partner. As pressure
to return money to investors and credi-
tors mounted, actions by tax authorities,
which the letter describes as “unfair”,
barred him from selling shares in Mind-
tree and Coffee Day.
In a carefully worded statement
responding to Mr Siddhartha’s note,kkr,
an American private-equity firm, said it
had sold a 4.25% stake in the company
(out of a holding of 10.3%) on the stock
exchange last year and was “deeply sad-
dened by the developments”, adding that
“We have not sold any shares before or
after February 2018.” Three other foreign
vehicles held stakes in the firm.
Tax authorities for the state of Karna-
taka acknowledged they had blocked Mr
Siddhartha’s shares. They said this was in
order to cover potential tax liabilities
stemming from a concealed transaction
which Mr Siddhartha was involved in
and which was unearthed during an
investigation into a prominent Karnata-
ka political leader. This has led to specu-
lation about whether ties of Mr Sidd-
hartha’s family to politicians may have
played a role in his death. Coffee Day
announced that it would launch its own
investigation.
The impact of the tycoon’s death will
linger—and not only because of its mys-
terious circumstances and his high
profile. The factors that apparently
pushed him over the edge—dodgy politi-
cal ties, tax investigations, high debts—
are all too common in Indian business.
What happened was tragic. Perhaps it
should not have been a surprise.Death of an entrepreneur
Tragedy in India IncMUMBAI
The founder of a beloved coffee chain commits suicideMr Siddhartha in happier timesG
reater thanthe sum of its parts. That,
in a nutshell, is how Albert Bourla, the
newish chief executive of Pfizer, described
the merger of the giant drugmaker’s stodgy
but profitable off-patent division, Upjohn,
and Mylan, a big but struggling generic-
drug firm. The all-stock transaction, an-
nounced on July 29th, would create the
world’s largest generics firm by revenue,
with an enterprise value of $50bn.
All bosses promise that spin-offs they
mastermind create value for shareholders.
And there are reasons to take Mr Bourla se-
riously, says David Risinger of Morgan
Stanley, an investment bank. If the man-
agement is to be believed, the as-yet-un-
named company will have revenues of
$19bn-20bn and gross operating margins of
40%. It has pledged to pay a dividend equal
to roughly a quarter of free cashflow. The
incoming boss, Michael Goettler, who runs
Upjohn, plans to chip away at the com-
bined company’s $25bn in debt, by cutting
$1bn in annual costs by 2023.
It should be able to expand quickly out-
side America’s fiercely competitive gener-
ics market, where consolidation among
wholesalers has allowed buyers to demand
lower prices and faster regulatory approval
of generic drugs has flooded the market
with low-cost medicines. The shares of big
generics firms exposed to America have
performed miserably in recent years. The
market share of the ten biggest declined
from 53% to 44% between 2014 and 2018.
On the surface, the transaction also
makes sense for Pfizer. The drugmaker has
been shedding assets to refocus on high-
growth areas. In December it spun off its
consumer-health division, which was
combined with that of gsk, a British rival. It
previously got rid of its animal-health
business. By sticking to lucrative areas like
cancer treatments, Mr Bourla hopes to per-
suade investors that Pfizer shares deserve a
higher price.
So far Wall Street seems unconvinced.
Tim van Biesen of Bain, a consultancy,
points out that it is unclear if Pfizer can
come up with enough blockbusters to sus-
tainably offset earnings from the divest-
ment of peripheral but profitable business-
es like Upjohn. Standard & Poor’s, a
credit-rating agency, downgraded Pfizer’s
debt on the news. Pfizer’s share price fell by
6.4% on June 30th, the biggest one-day
slide in a decade. Mylan’s long-suffering
stock edged up only slightly.The merged company, for its part, in-
herits lawsuits about Mylan’s alleged price
fixing and its role in America’s opioid cri-
sis. Mylan denies all wrongdoing. Mylan’s
shareholders are still fuming over the
firm’s move in 2015 to the Netherlands,
where it adopted an opaque corporate
structure, and practices like offering to pay
Robert Coury, its chairman, about $1m a
year for not using a company plane.
Observers worry that Mr Goettler maybe in over his head. They fear the firm will
in fact be controlled by the controversial
Mr Coury, who is to be its executive chair-
man, and Rajiv Malik, his long-serving
lieutenant, who is embroiled in the price-
fixing complaints. Pressed by analysts this
week on corporate governance, Mr Coury
was evasive. He vowed to return capital to
shareholders “from day one”. “I don’t make
shit up. You know that,” he promised. In-
vestors may need more reassurance. 7NEW YORK
Pfizer’s ill-received plan to create an
off-patent-drug giantPharmaceuticalsGeneric script