Sun Pharmaceutical to acquire rival Ranbaxy in $3.2 billion deal

Sun Pharma believes it can fix problems that have caused big problems for Ranbaxy Laboratories’ current controlling shareholder, Japan's Daiichi Sankyo

Jeffrey Bouley
MUMBAI, India—Sun Pharmaceutical Industries Ltd. and Ranbaxy Laboratories Ltd. on April 7 announced that they have entered into a definitive agreement under which Sun Pharma will acquire 100 percent of Ranbaxy in an all-stock transaction. Ranbaxy shareholders will receive 0.8 share of Sun Pharma for each share of Ranbaxy, which represents an implied premium of 18 percent to Ranbaxy’s 30-day volume-weighted average share price and a premium of 24.3 percent to Ranbaxy’s 60-day volume-weighted average share price, as of the close of business on April 4.
 
The deal totals out at $4 billion for Sun Pharma, with an agreement to pay $3.2 billion and assume $800 million in debt. In contrast, five years ago, Daiichi Sankyo Co. Ltd., paid $4.6 billion to assume control of Gurgaon, India-based Ranbaxy. But as market-watchers have noted, Ranbaxy factory problems have gotten it into trouble with the U.S. Food and Drug Administration, and Daiichi Sankyo doesn’t seem willing to bear that weight around its neck anymore. Sun Pharma, however, is seen by many analysts as perhaps having what it takes to turn those troubles around at Ranbaxy—as well as eliminating a competitor in the process.
 
The combination of Sun Pharma and Ranbaxy will create the fifth-largest specialty generics company in the world and the largest pharmaceutical company in India. The combined entity will have operations in 65 countries, 47 manufacturing facilities across five continents and a significant platform of specialty and generic products marketed globally, including several hundred Abbreviated New Drug Applications (ANDAs). On a pro-forma basis, the combined entity’s revenues are estimated at $ 4.2 billion with earnings before interest, taxes, depreciation and amortization of $ 1.2 billion for the twelve month period ended Dec. 31, 2013. The transaction value implies a revenue multiple of 2.2 based on 12 months ended Dec. 31, 2013, Sun Pharma notes.
 
“Ranbaxy has a significant presence in the Indian pharma market and in the U.S., where it offers a broad portfolio of ANDAs and first-to-file opportunities. In high-growth emerging markets, it provides a strong platform which is highly complementary to Sun Pharma’s strengths,” said Dilip Shanghvi, managing director of Sun Pharma. “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.”
 
“We believe this transaction brings significant value to all Ranbaxy shareholders,” noted Arun Sahwney, managing director and CEO of Ranbaxy. “Sun Pharma has a proven track record of creating significant long-term shareholder value and successfully integrating acquisitions into its growing portfolio of assets. We are confident that Sun Pharma is the ideal partner to help us realize our full potential and are excited to participate in future value creation opportunities.”
 
The proposed transaction has been unanimously approved by the boards of directors of Sun Pharma, Ranbaxy and Ranbaxy’s controlling shareholder, Daiichi Sankyo. Ranbaxy’s board and Sun Pharma’s board have recommended approval of the transaction to their respective shareholders.
 
According to Sun Pharma, the combination will “create a large specialty pharmaceutical company with strong capabilities in developing complex products and exploiting first to file opportunities” and the merged entities will “have a diverse, highly complementary portfolio of specialty and generic products targeting a spectrum of chronic and acute treatments.”
 
The acquisition is expected to be accretive to Sun Pharma’s cash earnings per share in the first full year. Additionally, Ranbaxy’s shareholders will participate in the value creation of the combined company through their ownership of Sun Pharma shares, the acquiring company says. Sun Pharma expects to realize revenue and operating synergies of $250 million by the third year after closing of the transaction. These synergies are expected to result primarily from topline growth, efficient procurement and supply chain efficiencies.

Jeffrey Bouley

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