Sun Pharma will buy Ranbaxy in an all-stock deal valued at $3.2 billion, Daiichi Sankyo will become Sun’s second-largest shareholder.
Sun Pharmaceutical Industries Ltd, India’s biggest drug maker by market value, has agreed to acquire Ranbaxy Laboratories Ltd, controlled by Japan’s Daiichi Sankyo Co. Ltd, in an all-stock deal worth $3.2 billion that will create the world’s fifth largest generics (or off-patent) drugs company by revenue and India’s largest pharma firm by market share.
The deal, which will also see Sun assume $800 million of debt on Ranbaxy’s books, needs shareholder and regulatory clearances.
For Daiichi, the deal is a continuation of its bet on the Indian generics market, one it has been unable to translate into profits, with Ranbaxy, in which it holds a 68% stake, running into trouble with the US Food and Drug Administration (FDA). The US regulator has banned imports from all of Ranbaxy’s manufacturing plants into the US.
Sun too has run into some trouble with FDA (imports from one of its plants in Gujarat to the US have been banned), but the impact of this is marginal.
Under the transaction, expected to be completed by this year’s end, shareholders of Ranbaxy will receive four shares of Sun Pharma for every five they hold. Daiichi will become the second-largest shareholder in Sun Pharma with around 8.9% stake.
The share-swap ratio values Ranbaxy at Rs.457 per share, a premium of 18% to the company’s 30-day volume-weighted average share price and an increase of 24.3% to its 60-day volume-weighted average share price as on Friday, 4 April.
On Monday, Sun Pharma shares gained 2.68% to Rs.587.25 on the BSE while Ranbaxy shares dropped 3.12% to Rs.445.20 on a day the benchmark Sensex ended little changed at 22,343.45 points. Last week, Ranbaxy shares gained 26%, the biggest rise since August, indicating that the market suspected a deal was in the works.
Daiichi Sankyo paid 61% more for Ranbaxy five years ago at Rs.737 rupees a share.
Citigroup Inc. advised Sun Pharma on the transaction and ICICI Securities Ltd was the adviser to Daiichi Sankyo. EY, the consulting firm formerly known as Ernst and Young, did the valuation.
The acquisition, the 14th since 1997 for Sun Pharma, controlled by billionaire Dilip Shanghvi, will allow the company to expand in countries where it hasn’t ventured so far and give it access to Ranbaxy’s product pipeline in the US and large distribution network in India.
“Ranbaxy has a significant presence in the Indian pharma market and in the US where it offers a broad portfolio of Andas (abbreviated new drug applications) and first-to-file opportunities,” said Shanghvi in a call with analysts.
“It provides a strong platform, which is highly complementary to Sun Pharma’s strengths. We see tremendous growth opportunities and are excited with the prospects to create lasting value for both our shareholders through a successful combination of our franchises,” he added.
The combination of Sun Pharma and Ranbaxy will have operations in 65 countries, 47 manufacturing facilities across five continents, and a significant platform of specialty and generic products marketed globally, including 629 new generic drug approvals in the US.
The combined entity’s revenues are estimated at $4.2 billion with an operating profit of $1.2 billion for the 12 months ended 31 December 2013.
“While we will be able to grow stronger in the US and Indian markets, Ranbaxy will also allow us to venture into high growth emerging markets like South Africa, Malaysia, Romania and Ukraine,” Shanghvi said.
Sun will stand to benefit from Ranbaxy’s distribution network as well.
“Our distribution network is not as strong as Ranbaxy’s which has a strong reach in the rural markets. We can leverage their distribution network and their strengths in over-the-counter drugs, chronic therapy and hospitalization products,” said Shanghvi.
The deal has been approved by the boards of both the companies and Daiichi Sankyo.
Sun Pharma said it has to obtain approvals for the deal from the central government, state governments, high courts of Gujarat, Punjab and Haryana, the Competition Commission of India and antitrust bodies in the US.
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