Sun acquires Ranbaxy

Dilip Shanghvi pulled off the biggest coup of his business career by hammering out an all-share deal in which his Sun Pharmaceutical will acquire struggling Gurgaon-based drugmaker Ranbaxy Laboratories, owned by Japan’s Daiichi Sankyo, for $4 billion including debt, creating what will be India’s largest drugmaker and the world’s fifth-ranked generics manufacturer.
Ranbaxy shareholders will receive four shares of Sun Pharma for every five they hold, according to an announcement made on Monday. The all-stock transaction will give the company room to make further acquisitions with nearly $500 million of cash on its books. Sun Pharma’s promoters will hold close to 56% in the combined entity while Daiichi Sankyo will hold a 9% stake. Following the acquisition, the Ranbaxy brand will cease to exist and both the companies will be operated under one management. A Daiichi Sankyo representative will be on the board of the combined company.
Peers hailed the move by Shanghvi, founder and managing director of Sun Pharma.

The sale will come as a relief to Ranbaxy’s Japanese owner, which has seen the company being hit by a series of sanctions by the US Federal Drug Administration over various wrongdoings, which have already entailed a $500-million settlement after a whistleblower called attention to them.
Daiichi Sankyo acquired a total 63.9% holding in Ranbaxy for $4.2 billion at the time, having bought out a controlling stake from promoters Malvinder and Shivinder Singh.
The company is currently struggling to comply with FDA norms so that it can resume exporting drugs to the world’s biggest drug market. Ranbaxy, which has been battling the regulatory issues for the past three years, has ceased to make profits.
However, the expanse of the company’s business across various regions, including India made it an attractive distressed buyout target for Sun Pharma. “We hope that the company will turn profitable in a year or two,” Shanghvi said.
Sun has said it will reshuffle the management after the merger, target $250 million in revenue from Ranbaxy by the third year of the acquisition and implement remedial measures to tackle the FDA regulatory issues. The company has said it will hire a third party as consultant to develop plans to deal with them.
While Ranbaxy has been facing problems over the past few years, the Shanghvi-led Sun Pharma has built itself an enviable reputation as a company with the ability to turn around companies that are in poor financial shape. With this acquisition, Sun Pharma joins the league of leading multinational generics makers such as Teva, Actavis, Sandoz and Mylan. In India, the combined entity will be the largest domestic drug maker by sales, Rs.6,921 crore going by FY13 figures, leaving behind competitors such as Abbott, which bought Piramal Healthcare for Rs.17,000 crore in 2010 to gain a lead in the domestic market.
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 629 abbreviated new drug applications (ANDAs). The acquisition also gives the entity a lead in the skincare segment, which is one of the most lucrative markets in the US.
In the last decade, Sun Pharma has made four acquisitions of distressed companies — Caraco, Taro, Dusa and URL — all of which it turned around. However, Ranbaxy may be different as no one has a clear idea how deep the company’s regulatory problems run, analysts said. However, Shanghvi brushed aside such concerns. “This is the biggest deal we have done, but not the most difficult one,” he said.