Sun Pharma-Ranbaxy Acquisition

Presented by
Vithika Misra
FA14058

Introduction: Pharmacy Sector

The pharmaceutical

industry develops,

markets drugs or pharmaceuticals

licence for

produces,
use

and

as medications.

Pharmaceutical companies are allowed to deal in generic or brand medications

and medical devices.
The Pharmaceutical industry has grown from mere US$ 0.3 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, headquartered in India, 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
An Indian multinational pharmaceutical company incorporated in India in

1961
Japanese pharmaceutical company Daiichi Sankyo acquired a controlling share

in 2008.
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.

Acquisition
April 6, 2014:To create worlds 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 Pharmas managing director Dilip Shanghvi has acquired a reputation for

acquiring companies in trouble at a good price, and then turning around their
operations

Why Daiichi sold Ranbaxy ?

Daiichi faced criticism after Ranbaxys plants came under the US Food and

Drug Administrations (FDAs)

Ranbaxys 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 Ranbaxys 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 entitys revenues were USD 4.2 billion with EBITDA of USD

1.2 billion for the twelve month period ended December 31, 2013.

Transaction Highlights
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 Sun Pharma.

Strategic business relationship to continue with Sun Pharma Voting Agreements

Daiichi Sankyo to vote in favor of transaction (~63.5% ownership) Sun Pharma

promoters to vote in favor of transaction (~63.7% ownership)

Conditions to close:
Requisite approval of Sun Pharma and Ranbaxy shareholders
Approval of the Indian Central Government and various other regulatory bodies

Problems to be faced by Sun Pharma

The deal, has also seen Sun assume $800 million of debt on Ranbaxys books,

needs shareholder and regulatory clearances.

Ranbaxys 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 Pharmas revenue jump by a healthy 40% but its

operating profit will rise by 7.5%, based on 2013 financials. Its operating
profit margin will decline from 44.1% to 29.2%.
The merger will have a negative effect on its performance in the near term.