3. INTRODUCTION: PHARMACY SECTOR
The pharmaceutical industry develops, produces, and
markets drugs or pharmaceuticals licensed for use
as medications. Pharmaceutical companies are allowed to
deal in generic or brand medications and medical devices.
The Pharmaceutical industry has grown from mere US$o.3
billion turnover in 1980 to 15 billion in 2012-2013.
Globally, India ranks 3rd in terms of volume of production(10
per cent of global share) and 14th largest by value. (1.5 per
cent of global share)
The reason for lower value share is the lowest cost of drugs
in India ranging from 5 to 50 per cent less as compared to
developed countries.
4.
5. SUN PHARMA
Established in 1983, listed since 1994 and headquartered
in India, Sun Pharma is an international, integrated,
specialty pharmaceutical company.
In India, the company is a leader in niche therapy areas of
psychiatry, neurology, cardiology, diabetology,
gastroenterology, orthopedics and ophthalmology.
The company has strong skills in product development,
process chemistry, and manufacturing of complex dosage
forms and APIs.
The 2014 acquisition of Ranbaxy will make the company
the largest pharma company in India, the largest Indian
pharma company in the US, and the 5th largest speciality
generic company globally.
6. RANBAXY
Ranbaxy Laboratories Limited is an Indian
multinational pharmaceutical company that was incorporated in
India in 1961. The company went public in 1973 and Japanese
pharmaceutical company Daiichi Sankyo acquired a controlling
share in 2008.
Ranbaxy Limited is an integrated, research based, international
pharmaceutical company producing a wide range of quality,
affordable generic medicines, trusted by healthcare professionals
and patients across geographies.
Ranbaxy serves its customers in over 150 countries and has an
expanding international portfolio of affiliates, joint ventures and
alliances, ground operations in 43 countries and manufacturing
operations in 8 countries.
In 2011, Ranbaxy Global Consumer Health Care received the
OTC Company of the year award.
8. ACQUISITION
Apr 06, 2014:To create world’s 5th largest
specialty generic pharma company
No. 1 pharma company in India with
leadership position in 13 specialty segments
No. 1 Indian pharma company in the US
Daiichi Sankyo to become the second largest
shareholder in Sun Pharma
11. WHY RANBAXY?
Ranbaxy has got a lot of ANDA's (Abbreviated New Drug
Application) approved for marketing in USA. Their
problem is to find an API plant because main source of
API was from Toansa. If Sun Pharma fills this gap,
Ranbaxy can begin its export to the USA. So, Sun
Pharma has got into this deal at the right time and deal
has an upside for all the shareholders.
Sun Pharma’s managing director Dilip Shanghvi has
acquired a reputation for acquiring companies in trouble
at a good price, and then turning around their operations
12. WHY DAICHI SOLD RANBAXY ?
Daiichi faced criticism after Ranbaxy’s plants
came under the US Food and Drug
Administration’s (FDA’s)
Ranbaxy’s inability to overcome its FDA-related
problems has put pressure on its promoters.
With Sun Pharma acquiring Ranbaxy, Daiichi is
relieved of the burden of managing Ranbaxy’s
problems. It will hold a 9% stake in Sun
Pharma, as a result of its current stake in
Ranbaxy.
13. VALUATION
Sun Pharmaceutical Industries fully acquired troubled
Ranbaxy Laboratories, in an all-stock transaction with
a total equity value of USD 3.2 billion.
Under these agreements, Ranbaxy shareholders
received 0.8 share of Sun Pharma for each share of
Ranbaxy.
The deal lead to 16.4% dilution in the equity capital of
Sun Pharma. This is because its total equity value is
$3.2 billion and the deal size is $4 billion
The combined entity’s revenues were USD 4.2 billion
with EBITDA of USD 1.2 billion for the twelve month
period ended December 31, 2013.
14. TRANSACTION HIGHLIGHTS
Sun Pharma to acquire Ranbaxy
Ranbaxy shareholders to get 0.8 shares of Sun
Pharma stock for every share of Ranbaxy
Deal size approximately US$ 4 billion.
Daiichi Sankyo to become the second largest
shareholder in SunPharma. Strategic business
relationship to continue with SunPharma Voting
Agreements
Daiichi Sankyo to vote in favor of transaction
(~63.5% ownership) SunPharma promoters to
vote in favor of transaction (~63.7% ownership)
15. Indemnity:
In connection with the transaction, Daiichi Sankyo
has agreed to indemnify SunPharma and Ranbaxy
for, among other things, certain costs and expenses
that may arise from the recent subpoena which
Ranbaxy has received from the United States
Attorney for the Toansa facility.
Conditions to close:
Requisite approval of Sun Pharma and Ranbaxy
shareholders
Approval of the Indian Central Government and
various other regulatory bodies
16. EFFECT ON STOCK PRICE OF BEFORE AND
AFTER ACQUISITION: RANBAXY
17. EFFECT ON STOCK PRICE OF BEFORE AND
AFTER ACQUISITION: SUNPHARMA
18. ADVISORS
Citi and Evercore were acting as financial advisors for
the transaction to Sun Pharma. Sun Pharma’s legal
advisors are Shearman & Sterling LLP, Crawford
Bayley & Co and S. H. Bathiya & Associates.
Ranbaxy’s financial advisor for the transaction is
ICICI Securities and its legal advisors are Luthra &
Luthra Law Offices and Amarchand & Mangaldas &
Suresh A Shroff & Co.
Daiichi Sankyo’s financial advisor for the transaction
is Goldman Sachs and its legal advisors are Davis
Polk & Wardwell LLP and Amarchand & Mangaldas &
Suresh A Shroff & Co.
19. PROBLEMS TO BE FACED BY SUNPHARMA
The deal, has also seen Sun assume $800
million of debt on Ranbaxy’s books, needs
shareholder and regulatory clearances.
Ranbaxy’s all four plants have been banned
by the USDFA for violations of manufacturing
norms. In 2013, the company agreed to pay
USD 500 million fine after pleading guilty to
felony charges over manufacturing and
distribution of adulterated drugs in the US.
20. CONCLUSION
That was the right time for Sun Pharma to buy Ranbaxy.
Ranbaxy's problem with US Food and Drug
Administration (FDA) cannot get more intense than they
are already, things can only improve from now onwards.
There will be tremendous synergy between the two
companies when they are merged as single entity. It will
be the largest Indian generic company and the fifth
largest in the world.
The merger will see Sun Pharma’s revenue jump by a
healthy 40% but its operating profit will rise by a meagre
7.5%, based on pro forma 2013 financials. Its operating
profit margin will decline from 44.1% to 29.2%. Thus, the
merger will have a negative effect on its performance in
the near term.
