Corporate Profile:

Established in 1937 by Ranjit Singh and

Gurbax Singh

Indias largest pharmaceutical company Ranked among worlds top 10 generic

company

It has a presence in 23 of worlds top 25

pharmaceutical market with export in over 125 countries manufacturing countries. nationalities. facilities in

Having

11

Work Force: 12,000 comprising of 50

2006 Ranbaxy Acquired Unbranded Generic Business Of GSK In Italy And Spain 2003 Receives The Economic Times Award For Corporate Excellence For The Company Of The Year 2002-03 1998 Ranbaxy Enters USA Worlds Largest Pharma Market, With Products Under Own Name 1995 Acquisition Of Ohm Laboratories In Us

1992 Company Enters Into An Agreement To Setup A Joint Venture In China Ranbaxy Ltd. 1985 Ranbaxy Research Foundation Is Established

1977 Ranbaxys First Joint Venture In Lagos (Nigeria) Is Setup

1961 Company Incorporate

Formation of Daiichi Sankyo

2005

Daiichi Sankyo Company, Limited, Japan

Daiichi Pharmaceutical Co., Ltd.

Sankyo Company, Limited

HISTORY OF DAIICHI-SANKYO
DAIICHI SANKYO SANKYO Shoten, SANKYOs predecessor company, established in Japan SANKYO establishes SANKYO Europe in Ds Germany Laboratories Fornet S.A., France

1915 Arsemin Shokai, DAIICHIs 1899

predecessor company, established in Japan

1982 DAIICHI establishes its US

subsidiary in New York

1985

2004 Daiichi establishes

DAIICHI Medical Research, INC.in the United States

2002 Acquisition of

2005 DAIICHI AND SANKYO ANNOUNCE IN FEBRUARY THEIR AGREEMENT TO MERGE

DAIICHI-SANKYO COMPANY LIMITED

Established in Sept. 28th 2005.(JAPAN) CEO :TAKASHI SHODA Workforce : 16,237 People. Major Industry : Ethical Drug Manufactures. Annual Sales in FY07: US$ 8.7 Bn

Profile Of Both the Companies

Largest in the India 8th in largest in the global general pharmaceuticals Serving in over 125 Countries Ground operations in 49 countries & Manufacturing in 11 countries. Strong R&D Base. 2nd largest in Japan 22nd Largest in the world Operations in 50 countries. Producer of high quality drugs

15th Largest drug maker in the world Market Capitalization 30 Billion Low cost production

Synergies
Considering that Ranbaxy is a generics company and Daiichi Sankyo an
innovator company, both the businesses complement each other with negligible overlap.(Daiichi will support Ranbaxy's R&D efforts and contract research business)

Ranbaxy provides a low cost manufacturing set-up to Daiichi Sankyo. Ranbaxy geographically diversified presence across the globe will enable it

to provide a wider reach to Daiichi Sankyo' product portfolio, including India. market holds good opportunities.

Ranbaxy has a small presence in the Japanese market where the generics

Ranbaxy incurred lower interest costs, as it became debt-free company.

Contd.
The deal strengthened the financials of Ranbaxy (making it debt free and
cash rich) and help it grow aggressively -organic.

Ranbaxy bypassed a lot of European and U.S. companies that were finding
it difficult to enter the Japanese market, where safety and testing requirements are a lot higher.

This deal made the amalgamated company to be the 15th largest pharma
company in the world.
Pre Merger Value of both the firms + Post Merger Number of shares Synergy

= Post Merger Stock Price The below equation solves for the minimum required synergy:

Strategic Objectives Behind The Deal

Presence in emerging markets for Daiichi-Sankyo (Geographical diversification). Entry into non-proprietary drugs for Daiichi-Sankyo (Product Extension). To develop new
drugs to fill the gaps and take advantage of Ranbaxys strong areas.

Realization of sustainable growth through a complementary business model. To

overcome its current challenges in cost structure and supply chain.

Acceleration of innovation drug creation by optimizing value chain efficiency. The acquisition of Ranbaxy by Daichi represents a major entry for the Japanese firm into
the high growth business areas of generic drug. The acquisition shows that global pharma companies are making efforts to cope up with strong generic drug makers.

To match the competitor's strategy.

The Deal
Daiichi-Sankyo acquired 34.8% stake in Ranbaxy on 11th June, 2008 It made an open offer to the Ranbaxy shareholders for another 20%

Picked up another 9.12% through preferential allotment

It was an all cash transaction.

Size of the deal: US$ 4.9 Billion

As per the deal, total value of Ranbaxy was US $ 8.5 Billion.

Transactional Process

Interpretation Of Shares Held Pre & Post Acquisition

SHARES HELD BY PRE % POST % CHANGE %

SINGH SINGHS FAMILY DAIICHI SANKYO MUTUAL FUND BANKS

34.82 19 5.56 1.71

63.92 2.58 0.32

(100) (100) 63.92 (53.59) (58.47)

INSURANCE COMPANY
F.I.I GENERAL PUBLIC

14.39
12.42 12.1

9.19
4.41 19.53

(36.13)
(64.49) 61.40

Last 5 years - Annual results in brief (Figs in Crores)

Dec ' 09 Dec ' 08
4,494.52

Dec ' 07
4,071.29

Dec ' 06
3,973.56

Dec ' 05
3,490.13

Sales

4,784.76

Operating profit
Interest Gross profit

822.89

239.75

546.87

559.45

65.76

(109.85)

893.40

93.43

58.10

26.41

1,210.12

(562.40)

893.14

580.92

249.01

EPS (Rs)

13.61

(24.56)

16.56

10.37

6.01

How did Daiichi-Sankyo acquire Ranbaxy?

How much did Daiichi-Sankyo pay?

Nature of transaction Open market share purchases Share purchases from founding family Share purchases by issuance of new shares Direct acquisition related expenditures Acquisition consideration (in million yens) 169,407 230,970 85,001 2,974

Gain of promoters Money infused in Ranbaxys balance sheet

Total

488,354

How did Daiichi-Sankyo value Ranbaxy?

Assets and Liabilities Book value of assets and liabilities (Cash, Inventory etc.) Inventories (Increase in inventories to fair value) Tangible assets (Land) Intangible assets (Leasehold land) Intangible assets (Increase in current products, etc. to fair value) In-process R&D expenses Deferred tax liability
Minority Interests

Value attributed (Yen billions)

78.8 2.0 10.0 5.9 41.0 6.9 (20.0)

(45.0)

Goodwill

408.7

83.69 %

Total consideration

488.3

Valuation of Ranbaxy Laboratories Ltd.

Price paid per share by Daiichi 52 week high / low as on 11th June 2008 for Ranbaxy share Valuation of 63.92% stake by Daiichi Rs.737 Rs. 593 / 300 19804 crores

Valuation of 100% equity of Ranbaxy as per the 30982 crores deal Enterprise valuation of Ranbaxy (on a fully diluted basis) Market capitalization of Ranbaxy as on 30th May 2009 (conclusion of deal) $ 8.5 billion 10434 crores

Global down turn due to the financial crisis has made Daiichi take a huge hit on its balance sheet due to the acquisition of Ranbaxy.

Impact of Ranbaxy deal on Daiichi-Sankyo Balance Sheet

In Yens billion Net profit / (loss) for Daiichi-Sankyo in FY2008 Net profit / (loss) for Daiichi-Sankyo in FY2009 Net cash used in investing activities in FY2008 Net cash used in investing activities in FY2009 Short term bank loans in FY2008 Short term bank loans in FY2009 97.6 (215.5) 49.4 413.8 0.1 264.3 Borrowings for the acquisition of Ranbaxy's share +240.0 billion Increase by consolidation of Ranbaxy Reason Recording of 351.3 billion in extraordinary losses due to a one-time write-down of goodwill pertaining to the investment in Ranbaxy. It is due to the cash acquisitions of shares which entailed cash out gos.

Impact of Ranbaxy deal on Daiichis Balance Sheet

In Yens (billion) 0.7 20.5 Loss on valuation of derivatives in FY 2008 Loss on valuation of derivatives in FY 2009

Reason

Consolidation of Ranbaxy: +14.8 billion

Foreign exchange losses in FY 2008

Foreign exchange losses in FY 2009 Purchases of investments in consolidated subsidiaries in FY 2008 Purchases of investments in consolidated subsidiaries in FY 2009

0
17.5 0.8

Consolidation of Ranbaxy: -10.6 billion

Acquisition of Ranbaxy: 387.0 billion

411.3

Financing of Deal
Daiichi-Sankyo funded the acquisition through debt and existing cash reserves. Daiichi-Sankyo has a taken a short and long term loans of 240 billion yens.
Post Acquisition Objectives

To develop new drugs to fill the gaps and take advantage of Ranbaxys strong areas.

To overcome its current challenges in cost structure and supply chain.

To match the competitor's strategy

BENEFITS TO RANBAXY AFTER MERGER

Company will become one of the top 5 in generic business
Access to Daiichi advanced R & D Access to Japanese drug market Infusion of an additional $ 1 billion into the company. Surplus cash of Rs.3,000 crore used for acquisition in generic place. Promoted as Independent generic arm of the company.

BENEFITS TO DAIICHI SANKYO AFTER MERGER

Strengthen the position of the company Faces intense competition from generics in its home
market

Acquisition will provide low cost manufacturing

Market access to over 60 countries

Ranbaxy-Daiichi will be the 15th largest drug maker in the world
with the market capitalization of $ 30 Bn.

EFFECT OF THE DEAL ON STOCK MARKET

Expectation was near around Rs. 737 per
share

Ranbaxy fell 3 % to Rs. 543 on the BSE.

Three main reason:

Low acceptance ratio Capital gains tax will have to be paid on

share through open offer.
dilution in equity.

Market are not affected even if 30 %

Market Reaction To The Acquisition Announcement-2008

Share price of Ranbaxy rose from 3.86% to Rs 526.40 on June
9th

Daiichi Sankyo agreed to pay as much as $4.6 billion for a 50.1%

stake in Ranbaxy

The stock ended almost flat at Rs 560.80 on June 11th . June 13- it spiked to Rs 660 and settled at 567.75 points, up a
mere 0.15%.

Comparative Analysis Of Annual Financial Results

Base 05
Sales 3490.13 4071.29 16.65 4494.52

yr. Dec. 07

% diff.

Dec. 08

Impact on the % diff. BS & PL

Sales increased owing to the increased market share 28.77

Dec. 09

% diff.

4784.76

37.09

Operating profit

65.76

546.87

731.61

239.75

Good will amortization losses,

264.58

822.89

1151.35

Interest

26.41

93.43

253.76

893.40

Borrowings for the acquisition of Ranbaxy's increased.

Purchases owing to the investment in Ranbaxy.

3282.8

(109.85)

(515)

Gross profit

249.01

893.14

258.67

(562.40)

(221)

1210.12

385.97

EPS (Rs)

6.01

16.56

175.54

(24.56)

EPS decreased as (508)

the total no: of shares increased

13.61

126.45

6000

5000

4000

3000

Sales Operating profit Interest Gross profit EPS (Rs)

2000

1000

0 Base yr. 05 -1000 Dec. 06 % diff. Dec. 07 % diff. Dec. 08 % diff. Dec. 09 % diff.

Impact Analysis of the deal on Daiichis Figures

The EPS showed a double fold increase without much of increase in gross profit which indicated that the reserves & surplus should have been made available accordingly. The balance sheet of Daiichi Sankyo indicated that the current liabilities had increased to 161% when compared to current assets which had decreased by (15.43%). COGS significantly decreased in the year 2008 due to the increase in Purchase of Investments owing to the acquisition.

Where did Daiichi fail: Due Diligence

Daiichi Sankyo though learnt about the US FDA Invocation ignored it
expecting it to get resolved.

Lack of proper due diligence. Daiichi, in its eagerness to tap the

expertise of a generic drug maker, took the risk of buying Ranbaxy for top dollar.

Three weeks after the deal, Daiichi reported currency-exchange

losses of nine billion rupees in 2008 owing to the Goodwill evaluation
at the time of acquisition.