SUNPHARMA RANBAXY ACQUISITION

GROUP NO:10

ALOK SINGH MANISH SINGH YADNESH SHINDE NILESH PANSKAR

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.

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.

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.

SUNPHARMA + RANBAXY=PROFILE OF A NEW GLOBAL LEADER

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

FINANCIAL STRENGTH

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

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.

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.

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)

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

EFFECT ON STOCK PRICE OF BEFORE AND AFTER ACQUISITION: RANBAXY

EFFECT ON STOCK PRICE OF BEFORE AND AFTER ACQUISITION: SUNPHARMA

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.

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.

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.

Thank you