The Ranbaxy deal By Jithin Manohar

Scenario at the Time of Acquisition ‘ India held US $7.5 billion of the $550 billion of the global pharmaceutical industry.’

Daiichi Sankyo Co., Ltd Daiichi Sankyo was established in 2005 through the merger of Sankyo Co., Ltd. and Daiichi parmaceutical company. It achieved a sales of $12.51 billion in the year 2010 and it has setup it’s outlets in 33 countries. The other major acqusition besides RANBAXY were the American biotechnology company PLEXXITON and German biotechnology company U3.

Ranbaxy It was started in 1937 by Ranbir singh and Gurbax singh. In current scenario it achieved a sales revenue of $1.07 billion and the company exports to more than 125 countries with ground operation in 46 countries and having manufacuring facilities in 7 countries.

Reasons for takeover Ranbaxy’s R n D department was underperforming. Ranbaxy had 3 options: Acquire, Merge or sellout. Sellout was most profitable. Daiichi was facing increasing cost structure problems. Another major problem was that in Japan the generic drug companies were small and were not well developed.

The DEAL!! Daiichi Sankyo was all set to acquire the controlling stake in Ranbaxy ie upto 50.1% stake in Ranbaxy. How did the deal work out? They signed an agreement with the company’s promoters ie THE SINGH family, which actually helped them gaining a 34.8 stake in the company. It was sold at 737 per share.

The Deal!! They acquired another 9.4% through prefrential allotment They made an open offer to acquire another 20% to the existing shareholders. The comany could acquire another 4.9% through issue of share warrants.

Synergy

The Benefits For Ranbaxy..  The immediate benefit was clearing their debt.  The company could now access the Japanese market.  Competitive advantage.

The Benefits For Daiichi..  It boosted their status i.e. it elevated their ranking from 22nd to 15th in the global pharmaceutical market.  Could now access the emerging generic drug markets.  Economies of scale

Effect on stock market The share price of Ranbaxy rose by 3.86% to Rs on June 9th, two days before the announcement of its buyout by Daiichi Sankyo. But on June 9th the sensex fell by 506 points On June 10th the ranbaxy scrip surged by 6.25% i.e. to Rs but on the same day the sensex fell by 177 points. On june 11th it was around Rs It was not just Ranbaxy that had a run up, but the companies that are promoted by Ranbaxy’s promoter family also rallied. Zenotech surged 20 per cent, Religare (8.53 per cent), Fortis Financial Services (10 per cent), Fortis Healthcare (18.87 per cent), Krebs Biochemicals (4.92 per cent), Jupiter Biochemicals (13 per cent) and Orchid increased by per cent

Conclusion