RANBAXY LABORATORIES LIMITED

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.

DAIICHI SANKYO COMPANY, LIMITED

Dai-Ichi Karkare Limited (DIKL) was set up in 1960 as a private limited company for the manufacture of speciality chemicals.

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.

RANBAXY-DAIICHI SANKYO DEAL

On 12th June 2008, Ranbaxy entered into an alliance with one

of the largest Japanese innovator companies, Daiichi Sankyo Company Ltd., to create an innovator and generic pharmaceutical powerhouse. Daiichi Sankyo Co. Ltd. signed an agreement to acquire 34.8% of Ranbaxy Laboratories Ltd. from its promoters.

Daiichi Sankyo expects to increase its stake in Ranbaxy through

various means such as preferential allotment, public offer and preferential issue of warrants to acquire a majority in Ranbaxy, i.e. at least 50.1 %
Under the deal, Daiichi Sankyo agreed to acquire 34.8 per cent stake for around Rs. 10,000 crore ($2.4 billion) at Rs. 737 ($17) per share, at a premium of 31% over the price. (Current price 561 and Deal price is 737) from the promoters Mr Malvinder Singh and family.

ContinueThe Japanese company has agreed to acquire 34.81 per cent

of the stake of the company, The company will also make an open offer. The open offer made to the public shareholders for acquiring another 20 per cent at Rs 737 a share that increase Daiichi Sankyos stake in the company to a maximum of 58.09 per cent. Sankyo pick up another 9.5 per cent through preferential allotment of equity shares and another 4.5 per cent through share warrants to be issued on a preferential basis.

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.

Not A Sell Out, But A Strategic Deal

This is not an exit. This is a strategic transaction that will completely transform the way business is done. It brings together a generic and innovator company. This is phenomenal. We are headed for a strategic redefinition, and are creating a new business model. It makes perfect sense for the shareholders, and takes the company to a different level. On the financial side, the debt goes to zero, Rs 3,000 crore of cash comes in, the market capitalization goes to $8billion, the net worth goes up. Our objective is to be No. 1 in generics. Ranbaxy had to sell in order to clinch the deal "When you are the leader, you have to set the pace for the industry," He added future of, the company was more important than family ownership. Singh chose to describe the link-up as an association that, would put Ranbaxy on a new and much stronger platform to harness our capabilities in drug development, manufacturing and global reach. Together with our pool of scientific, technical and managerial resources & talent, we would enter a new orbit to chart a higher trajectory of sustainable growth in the medium and long term in the developed and emerging markets organically and inorganically. This is a significant milestone in our Mission of becoming a Research based International Pharmaceutical Company.

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.

Advantage To Daiichi Sankyo And Ranbaxy With This Deal

The main benefit for Daiichi Sankyo from the merger is

Low-cost manufacturing infrastructure and supply chain

strengths.

Strength in proprietary medicine complements Ranbaxys

leadership in the generics segment and acquired a broader product base, therapeutic focus areas and well distributed risks.

The current value of the sector is $5.5 billion, which equates to

7.3% of total medicines sales. Changes to prescribing procedures and the influx of foreign firms with low-cost goods will provide a stimulus to the generic drug sector.

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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.

Ranbaxys debt will be significantly reduced and will impart

more flexibility to pursue growth opportunities.

Ranbaxy could bypass a lot of European and U.S. companies

that are finding it difficult to enter the Japanese market, where safety and testing requirements are a lot higher.

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.

Ranbaxy will be affected by the slowdown and lower prices in

the generics market, especially after the string of patent expiries in the US over the next few years. Hence, the company needed to add new growth engines by increasing investments in R&D and developing its proprietary business. Also, following from the stake sale (65%) of Dabur promoters to Gerrman-Fresenius Krabi earlier this year and this deal, this could become a new trend in the pharma industry.

 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.