Dilip Sanghvi led Sun Pharma to acquire Ranbaxy

New Delhi, 7 April 2014

At a time when both are up against quality compliance issues with health regulator in the lucrative US market, Sun Pharmaceutical Industries today announced that it will fully acquire Ranbaxy Laboratories in an all-stock transaction deal valued at $3.2 billion.

Creating the fifth-largest speciality generics company in the world, the two companies said they will become the largest pharmaceutical company in India.

The announcement comes at a time when Ranbaxy is struggling with quality compliance issues as all its four plants in India have been banned by the USFDA from exporting products to the US. Similarly, Sun’s Karkhadi plant is also barred from shipping products to the US for violation of good manufacturing norms.

Under the agreements announced today, Ranbaxy shareholders will receive 0.8 share of Sun Pharma for each share of Ranbaxy, representing an implied value of Rs 457 for each Ranbaxy share, a premium of 18 per cent to Ranbaxy’s 30-day volume-weighted average share price and a premium of 24.3 per cent to Ranbaxy’s 60-day volume-weighted average share price, in each case, as of the close of business on April 4, 2014.

“The transaction has a total equity value of approximately $3.2 billion,” the two companies said in a joint statement.

The combined entity’s revenues are estimated at $4.2 billion with operations in 65 countries, 47 manufacturing facilities across five continents, and a significant platform of speciality and generic products marketed globally, including 629 ANDAs (abbreviated new drug applications).

Later addressing a conference call, Sun Pharma Managing Director Dilip Shanghvi said: “There is is very little product specific overlap between Ranbaxy and Sun products. So there is enormous amount of opportunity…It gives us leadership position in chronic therapy, in acute care, hospitals… In the US which is the largest market for Sun, we can now further strengthen, with many more ANDAs waiting approval and also first to file opportunities.”

Sanghvi, however, declined to put a timeframe on expected approvals for Ranbaxy’s applications in the US.

“The first important issue for us is to focus on is to achieve compliance. Only once the facility is re-certified we can look at new product approvals from this facility…All I can is promise is that it would be the most important thing for the management to achieve compliance,” Sanghvi said.

When asked about premium paid despite issues faced by Ranbaxy in the US, he said: “We’ll have to look at the overall business and not at any temporary one time cost …We believe that valuation is justified and I am confident of future for combined shareholders…

“…The quality of business of Ranbaxy from whatever we have seen is no way inferior to the quality of Sun Pharma. So it should be possible for us to find a way to make the biz profitable. How long will it is a matter of time.”

In 2013, the company agreed to pay $500 million fine after pleading guilty to felony charges over manufacturing and distribution of adulterated drugs in the US.

Sun Pharma said it expected to realise revenue and operating synergies of $250 million by third year post closing of the transaction. These synergies are expected to result primarily from topline growth, efficient procurement and supply chain efficiencies.

The statement by the two companies said Ranbaxy has recently received a subpoena from the United States Attorney for the District of New Jersey asking it to produce certain documents relating to issues previously raised by the FDA with respect to Ranbaxy’s Toansa facility.

“In connection with the transaction, Daiichi Sankyo has agreed to indemnify Sun Pharma and Ranbaxy for, among other things, certain costs and expenses that may arise from the subpoena,” it said.

Ranbaxy MD and CEO Arun Sahwney said the transaction brings significant value to all Ranbaxy shareholders.

“Sun Pharma has a proven track record of creating significant long-term shareholder value and successfully integrating acquisitions into its growing portfolio of assets. We are confident that Sun Pharma is the ideal partner to help us realise our full potential and are excited to participate in future value creation opportunities,” he added.