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Sun Pharma In The News

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Billionaire Dilip Shanghvi Inks $4 Billion Deal With Daiichi Sankyo To Buy Rival Ranbaxy


Ending months of speculation that it was eyeing potential acquisitions, Sun Pharmaceutical Industries, India’s most valuable pharma firm controlled by billionaire pharma tycoon Dilip Shanghvi (net worth: $12.4 billion), announced early Monday that it will acquire Delhi-headquartered rival Ranbaxy Laboratories from Japanese firm Daiichi Sankyo, in an all-stock deal valued at $4 billion, including debt.

The transaction, which is expected to close in nine months time after securing all regulatory approvals, values Ranbaxy at 2.2 times its $1.8 billion revenues for 2013. Shareholders of Ranbaxy, including Daiichi which owns a 63.5% stake, will get 0.8 shares of Sun for every share they hold. Post-deal, Daiichi will be Sun Pharma’s single largest shareholder after Shanghvi himself, with a 9% stake and a seat on the company’s board.

The combined unit will be the world’s fifth largest generics firm with annual revenues of $4.2 billion and a global footprint extending to 65 countries, including the US where the two firms have combined revenues of more than $2 billion and 629 generic drug approvals. In India, Sun which was at number 2 , will overtake Abbott Laboratories to become the largest pharma firm with domestic sales of $1.1 billion.

When I asked vaccine billionaire Cyrus Poonawalla what he thought of Shangvi’s latest trophy, he was unequivocal that Shanghvi has snatched a prize. “ This is a great acquisition for Sun. Ranbaxy is a gold mine and there’s huge scope to turn it around, ” he said

Shanghvi has established a solid track record as a turnaround specialist. This latest purchase is the pharma tycoon’s biggest since he set up Sun in 1993 as a maker of psychiatric drugs. He went on to build the company with a string of acquisitions- 16 including Israel’s Taro Pharmaceuticals for which Shanghvi fought a hard-won battle to take control-that were successfully integrated with the mother ship.

Daiichi Sankyo on its part, has faced a rocky road in India since 2008 when it entered the market with a bang taking control of Ranbaxy from the billionaire brothers Malvinder and Shivinder Singh, paying $4.6 billion. Ranbaxy had been founded by the brothers’ grandfather and the sale of such an iconic domestic player had set the stage for other buyouts of Indian units by multinational pharma firms. In 2010, billionaire Ajay Piramal sold his domestic formulations business to Abbott Labs for $3.8 billion.

Since then, Ranbaxy has had a host of problems with the US Food and Drug Administration which culminated in a ban of certain drugs and a $500 million fine for alleged manufacturing deficiencies at its Indian factories. The dispute had caused bad blood between Daiichi and the Singh brothers with the Japanese company accusing the Singhs of misrepresentation.

It’s believed that Daiichi was looking to sell the troubled Ranbaxy for a while. Speaking to television channel CNBC-TV18, Ajay Piramal said that Sun is more competent to handle Ranbaxy’s FDA problems. In March, Sun itself received an import alert from the FDA, banning the export of drugs from its factory in Gujarat, a move that triggered a fall in Sun’s shares.

When I asked Malvinder Singh what he thought of his one-time family jewel falling into Shanghvi’s hands, he sounded upbeat, saying it was a positive development for both the companies and the Indian generics industry. “Ranbaxy is a great company and Sun with its experience and understanding of the generics space should be able to unlock the true potential and value in Ranbaxy. This unfortunately, did not happen under Daiichi Sankyo which failed to harness and assimilate the complexities of running a strong generics business.”

Sun’s investors have reacted positively to the news as its shares surged by 10% when the stock market opened and have remained up though at a lower level; Ranbaxy’s shares have fallen 5% meantime.