RANBAXY LABORATORIES LIMITED
Ranbaxy Laboratories Limited, India's largest pharmaceutical
company, 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.
It was incorporated in 1961 by Singh's grandfather Bhai Mohan
Singh, further his son Dr. Parvinder Singh succeeded it,
transforming Ranbaxy into Indias's first multinational drug firm.
 It went public in 1973.
1990 Ranbaxy Granted US patent for DoxyCyline.
1992 Entered into an agreement with Eli Lilly & Co. of USA for
setting up a joint venture in India to Market Select Lilly Products.
Continue…
Ranked 8th amongst the global generic pharmaceutical
companies, Its stated vision has been to be among the top five
global generic players and to achieve global sales of $5 billion by
2012.
Ranbaxy today has a presence in 23 of the top 25
pharmaceutical markets of the world. The Company has a global
footprint in 49 countries, world-class manufacturing facilities in 11
countries and serves customers in over 125 countries.
It has 12,000 employees, including 1,200 scientists
Mr. Atul Sobti is the present CEO & MD of Ranbaxy
Laboratories.
DAIICHI SANKYO COMPANY, LIMITED
Dai-Ichi Karkare Limited (DIKL) was set up in 1960 as a private
limited company for the manufacture of speciality chemicals.
The Company entered into technical collaboration with the
internationally known speciality chemicals manufacturer Dai-Ichi
Kogyo Seiyaku Co. Limited of Kyoto, Japan (DKS) and
commenced commercial production in 1963.
A global pharma innovator, Daiichi Sankyo Company, Ltd., was
established in 2005 through the merger of two leading Japanese
pharmaceutical companies under the head of Takashi Shoda, CEO
of Daiichi Sankyo . This integration created a more robust
organization that allows for continuous development of novel
drugs that enrich the quality of life for patients around the world.
Continue…
 It was the first company in the country to produce ethylene
oxide.
 It has a presence in 21 countries and employs 18,000 people.
It is the second largest pharmaceutical company in Japan.
Daiichi Sankyo makes prescription drugs, diagnostics,
radiopharmaceuticals and over-the-counter drugs.
RANBAXY-DAIICHI SANKYO
DEAL
On 12th June 2008, Ranbaxy entered into an alliance with one
of the largest Japanese innovator companies, Daiichi Sankyo
Company Ltd., to create an innovator and generic pharmaceutical
powerhouse. Daiichi Sankyo Co. Ltd. signed an agreement to
acquire 34.8% of Ranbaxy Laboratories Ltd. from its promoters.
Daiichi Sankyo expects to increase its stake in Ranbaxy through
various means such as preferential allotment, public offer and
preferential issue of warrants to acquire a majority in Ranbaxy, i.e.
at least 50.1 %
 Under the deal, Daiichi Sankyo agreed to acquire 34.8 per cent
stake for around Rs. 10,000 crore ($2.4 billion) at Rs. 737 ($17)
per share, at a premium of 31% over the price. (Current price 561
and Deal price is 737) from the promoters Mr Malvinder Singh
and family.
ContinueThe Japanese company has agreed to acquire 34.81 per cent
of the stake of the company, The company will also make an
open offer. The open offer made to the public shareholders
for acquiring another 20 per cent at Rs 737 a share that
increase Daiichi Sankyo’s stake in the company to a
maximum of 58.09 per cent.
Daiichi
Sankyo pick up another 9.5 per cent through
preferential allotment of equity shares and another 4.5 per
cent through share warrants to be issued on a preferential
basis.

That come into play if the ordinary shareholders don't
respond to the open offer and Daiichi Sankyo needs another
way to raise its stake to 51%.
Continue…
Deal Structure
Daiichi Sankyo will also be issued fresh shares and warrants (46.3 million shares + 23.8
million warrants), which will result in a cash infusion of about Rs 50 billion (@ Rs
737/share). The fresh shares and warrants will be issued at Rs 737/share or the rate
determined by SEBI rules, whichever is higher.
Daiichi will have to make an open offer (on the expanded capital) to Ranbaxy
shareholders. Its stake will go up to about 59% post the open offer and exercise of
warrants. The warrants will be exercisable 6-18 months post allotment. It will also have
to make an open offer to Zenotech shareholders in which Ranbaxy holds significant
stake.
The shareholding post the deal will go up on account of the fresh shares and warrants
issued to Daiichi Sankyo and conversion of FCCBs.
Continue….
After the acquisition, Ranbaxy will operate as Daiichi Sankyo’s
subsidiary but will be managed independently under the leadership of
its current CEO & Managing Director Malvinder Singh.
The deal made Daiichi-Ranbaxy, the combined entity the 15th largest
pharmaceutical company in the world with a market capitalization of
around US$30 billion bigger than Teva but still far smaller than the
$48-billion Pfizer, the $44-billion GlaxoSmithKline and $40-billion
Novartis group.
It helped Daiichi leverage its innovative drug making capabilities and
R&D expertise with Ranbaxy’s low cost manufacturing abilities to
achieve a competitive position in the world generic drug market.
Not A Sell Out, But A Strategic Deal
This is not an exit. This is a strategic transaction that will completely transform the way
business is done. It brings together a generic and innovator company. This is
phenomenal. We are headed for a strategic redefinition, and are creating a new business
model. It makes perfect sense for the shareholders, and takes the company to a different
level. On the financial side, the debt goes to zero, Rs 3,000 crore of cash comes in, the
market capitalization goes to $8billion, the net worth goes up. Our objective is to be No.
1 in generics.
Ranbaxy had to sell in order to “clinch the deal” –"When you are the leader, you have to
set the pace for the industry," He added future of, the company was more important
than family ownership.
Singh chose to describe the link-up as an “association” that, would put Ranbaxy “on a
new and much stronger platform to harness our capabilities in drug development,
manufacturing and global reach. Together with our pool of scientific, technical and
managerial resources & talent, we would enter a new orbit to chart a higher trajectory of
sustainable growth in the medium and long term in the developed and emerging
markets organically and inorganically. This is a significant milestone in our Mission of
becoming a Research based International Pharmaceutical Company. ”
Synergies
Considering that Ranbaxy is a generics company and Daiichi Sankyo an
innovator company, both the businesses complement each other with negligible
overlap.
 Ranbaxy can provide a low cost manufacturing set-up to Daiiichi Sankyo
through Ranbaxy, Zenotech and Orchid.
 Unlike Daiichi Sankyo, Ranbaxy has a geographically diversified presence
across US, Europe and emerging markets thus it will be able to provide a wider
reach to Daiichi Sankyo' product portfolio, including in India.
 Ranbaxy has a small presence in the Japanese market where the generics
market holds good opportunities. This deal will help Ranbaxy tap this
opportunity.
 Ranbaxy is essentially a generics company with efforts to build its
proprietary business. Daiichi Sankyo, which has expertise in innovative R&D
will support Ranbaxy's R&D efforts and contract research business.
 Ranbaxy will incur lower interest costs, as it will now become a debt-free
company.
 The deal with Daiichi Sankyo will strengthen the financials of Ranbaxy
(making it debt free and cash rich) and help it grow aggressively organically and
through acquisitions.
Advantage To Daiichi Sankyo And
Ranbaxy With This Deal
The main benefit for Daiichi Sankyo from the merger is…
 Low-cost manufacturing infrastructure and supply chain
strengths.
 Strength in proprietary medicine complements Ranbaxy’s
leadership in the generics segment and acquired a broader
product base, therapeutic focus areas and well distributed risks.
 The current value of the sector is $5.5 billion, which equates to
7.3% of total medicines sales. Changes to prescribing procedures
and the influx of foreign firms with low-cost goods will provide a
stimulus to the generic drug sector.
Continue…
Daiichi Sankyo will now have access to Ranbaxy's entire range
of 153 therapeutic drugs across 17 diverse therapeutic indications.
Additional NDAs from the US FDA on anti-histaminics and antidiabetics is an added advantage.
Ranbaxy’s debt will be significantly reduced and will impart
more flexibility to pursue growth opportunities.
Ranbaxy could bypass a lot of European and U.S. companies
that are finding it difficult to enter the Japanese market, where
safety and testing requirements are a lot higher.
This deal will make the combined company the 15th largest
pharma company in the world.
Negatives….
Ranbaxy's R&D expense will go up significantly as the
company will now not go through with the de-merger of its R&D
unit.
Ranbaxy will be affected by the slowdown and lower prices in
the generics market, especially after the string of patent expiries
in the US over the next few years. Hence, the company needed to
add new growth engines by increasing investments in R&D and
developing its proprietary business. Also, following from the
stake sale (65%) of Dabur promoters to Gerrman-Fresenius
Krabi earlier this year and this deal, this could become a new
trend in the pharma industry.
 A clear arbitrage opportunity exists, wherein one could
buy the stock at the current level and sell it in the open
offer. As more people take advantage of the price
differential, the stock price of the company will rise to the
Rs 737 level. However, in the days following the
announcement of the deal the price of Ranbaxy does not
seem to have risen. Hence, the arbitrage opportunity still
exists and investors will benefit from buying the stock at
the current level and tendering them in the open offer.
Impact On Market
Ranbaxy Laboratories Ltd stock price movements over the past
few weeks are as follows:
 The share price of the country’s largest drug maker rose 3.86%
to Rs 526.40 on June 9, two days before the company announced
its buyout by Daiichi Sankyo. The benchmark Sensex plunged 506
points the same day.
 Daiichi Sankyo agreed to pay as much as $4.6 billion for a
50.1% stake in Ranbaxy. As reported earlier, on June 10, a day
before the deal was announced, the Ranbaxy scrip surged 6.52% to
Rs 560.75 and the Sensex fell 177 points.
 The stock ended almost flat at Rs 560.80 on June 11.
 On Monday, it spikes to 660 and settled at 567.75 points, up a
mere 0.15%.
Conclusion
Daiichi Sankyo’s move to acquire Ranbaxy will enable the
company to gain the best of both worlds without investing heavily
into the generic business. The patent perspective of the merger
clearly indicates the intentions of both companies in filling the
respective void spaces of the other and emerge as a global leader
in the pharmaceutical industry.
Ranbaxy has become part of a Japanese corporate framework,
which is extremely reputed in the corporate world. As a generics
player, Ranbaxy is very well placed in both India and abroad
although its share performance belies its true potential.