Sun rises over Ranbaxy

Sun Pharmaceutical to acquire rival Ranbaxy Laboratories for $3.2 billion

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MUMBAI, India—It was five years ago that Daiichi Sankyo Co. Ltd., paid $4.6 billion to assume control of Gurgaon, India-based Ranbaxy Laboratories Ltd.; now, Ranbaxy rival and fellow Indian company Sun Pharmaceutical Industries Ltd. stands poised to get the company for $3.2 billion plus the assumption of $800 million in debt.
April 7 saw the companies announce that they had 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.
As some 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).
“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,” according to 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, when the deal was announced. “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.
Forbes writer Naazneen Karmali interviewed Dr. Cyrus S. Poonawalla, chairman of Poonawalla Group—which includes Serum Institute of India, an Indian biotech company that manufactures pediatric vaccines—about the deal and quoted the vaccine billionaire as saying, “This is a great acquisition for Sun. Ranbaxy is a gold mine and there’s huge scope to turn it around.”
According to Prakash Agarwal, an analyst at CIMB Securities India Pvt. in Mumbai, as noted in a Bloomberg article by Ketaki Gokhale and Kanoko Matsuyama, “It is a long-term positive for Sun Pharma because it adds emerging-markets facilities. Ranbaxy’s consent decree will be resolved in a few years’ time, so they should be out of the woods in terms of the FDA issues.”
The transaction will not just be a boon for Sun Pharma, but will also help Daiichi Sankyo’s earnings, said Takashi Akahane, a healthcare analyst at Tokai Tokyo Research Center Co. interviewed for the Bloomberg article, who noted that the Japanese company is content to leave business in India to local entities these day. Upon completion of the acquisition, Daiichi Sankyo expects to own 9 percent of the combined company.
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.

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