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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.
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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.
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.
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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.
Daiichi
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%.
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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.
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After the acquisition, Ranbaxy will operate as Daiichi Sankyos 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 Ranbaxys low cost manufacturing abilities to achieve a competitive position in the world generic drug market.
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.
leadership in the generics segment and acquired a broader product base, therapeutic focus areas and well distributed risks.
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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.
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.
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 countrys 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 Sankyos 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.