0.8:1 exchange ratio fixed for the $4 b all-share transaction

In a landmark transaction for the Indian pharmaceutical industry, Sun Pharmaceutical Industries (SPL) on Monday announced that it will acquire 100 per cent of Ranbaxy Laboratories in a $ 4 billion all-share transaction.

The transaction has a total equity value of $ 3.2 billion and a net debt of $ 800 million on Ranbaxy’s books will also be part of the transaction.

The combined entity will create the fifth-largest specialty generics company in the world and the largest pharmaceutical company in India with leadership in 13 specialty segments.

The combine will have operations in 65 countries, 47 manufacturing facilities across five continents and a swathe of specialty and generics products including 629 ANDAs (Abbreviated new drug applications). It will also become the largest Indian pharma company in USA with over $ 2 billion sales and a pipeline of 184 ANDAs.

Both companies said that they had entered definitive agreements under which Ranbaxy shareholders will receive 0.8 shares of Sun Pharma for every share of Ranbaxy. The exchange ratio represents a value of Rs 457 per share of Ranbaxy which is at an 18 per cent premium to the 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 as on April 4, 2014. The transaction is expected to close by December 2014 and will be EPS-accretive a year after.

"It is a very synergistic transaction,’’ Dilip Shanghvi, Managing Director of Sun Pharma said in a conference call. ``It strengthens our presence in chronic therapy, acute care and OTC (over-the-counter) segment, all important segments going forward. The USA has been the largest market for Sun and this deal will further strengthen our presence there.’’

The transaction has been approved by the Boards of Directors of both companies and Daiichi Sankyo which holds 63.4 per cent in Ranbaxy.

"Firms share similar ambitions"

Arun Sawhney, managing director & CEO, Ranbaxy said, "both companies share similar ambitions to grow globally with complementary strengths. It is a landmark transaction not only for Sun but on the Indian pharma map. I foresee huge opportunities opening for all stakeholders with the coming together of the companies.’’

On a pro forma basis, the combined entity’s revenues are estimated at US $ 4.2 billion with operating profit of US $ 1.2 billion for calendar 2013.

According to Mr. Shanghvi, although Ranbaxy has been facing regulatory compliance issues with the US FDA, its India and emerging markets business is robust with a pipeline for growth and profitability. ``We believe the valuation is justified and are confident of creating future value for the shareholders.’’

He said both companies would use their current infrastructure to sell each others products. The synergy benefits from the transaction will be around $ 250 million three years after its completion. "A large part of this will be derived from growth, procurement and supply chain efficiencies,’’ Mr. Shanghvi said. ``Daiichi will then become the second largest shareholder in Sun and will have an independent director on Sun’s board."

The markets to immediate leverage are India, USA and then the emerging markets. Sun has sales of more than $ 100 million in South Africa, Russia and Romania and is looking to further strengthen our position in Brazil and Malaysia, Mr. Shanghvi said.

After opening the day at Rs 505, in afternoon trade, Ranbaxy shares slid 4.84 per cent to Rs 437.3 while Sun Pharma shares rose 1.21 per cent at Rs 578.8.

More In: Industry | Business | News