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Shree Chanakya Education Society'sINDIRA SCHOOL OF BUSINESS STUDIES, PUNE

POST GRADUATE DIPLOMA IN MANAGEMENT-(PGDM)-Finance-Splz

Mid-Semester Examination-September 2012Semester-III

SUBJECT: Corporate RestructuringTotal Marks: 40

Code: 305 FDuration: 1Yl Hours

Note: 1. Q.l is compulsory.2. Attempt any THREE from remaining four.3. All questions carry equal marks.

Q.l Explain the concept of Mergers, Acquisitions and Amalgamation 10 marks

Q.2 What is the legal process that requires approval to the scheme of mergers and 10 marksamalgamations as per Companies Act 19567

Q.3 a. Differentiate between the pooling and purchase methods of accounting for 10 marksamalgamation

b. Explain Joint Venture

Q.4 Explain the different methods of valuation of a company 10 marks

Q.5 Case Study (Ranbaxy and Daiichi Sankyo) 10 marksRanbaxy Laboratories Limited is an Indian pharmaceutical company that wasincorporated in India in 1961. The company went public in 1973 and Japanesepharmaceutical company Daiichi Sankyo gained majority control in 2008. Ranbaxyexports its products to 125 countries with ground operations in 43 and manufacturingfacilities in eight countries. In 20 II, Ranbaxy Global Consumer Health Care receivedthe Pharma OTC Company of the year award.Ranbaxy was started by Ranbir Singh and Gurbax Singh in 1937 as a distributor for aJapanese company Shionogi. The name Ranbaxy is a combination of the names of itsfirst owners Ranbir and Gurbax. Bhai Mohan Singh bought the company in 1952 fromhis cousins Ranbir and Gurbax. After Bhai Mohan Singh's son Parvinder Singh joinedthe company in 1967, the company saw an increase in scale.In 1998, Ranbaxy entered the United States, the world's largest pharmaceuticalsmarket and now the biggest market for Ranbaxy, accounting for 28% of Ranbaxy'ssales in 2005. For the twelve months ending on 31 December 2005, the company'sglobal sales were at US $1,178 million with overseas markets accounting for 75% ofglobal sales (USA: 2R%, Europe: 17%, Brazil, Russia, and China: 29%). For thetwelve months ending on December 31, 2006, the company's global sales were at US$1,300 million.Most of Ranbaxy's products are manufactured by license from foreign pharmaceuticaldevelopers, though a significant percentage of their products are off-patent drugs that

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are manufactured and distributed without licensing from the original manufacturerbecause the patents on such drugs have expired.In December 2005, Ranbaxy's shares were hit hard by a patent ruling disallowingproduction of its own version of Pfizer's cholesterol-cutting drug Lipitor, which hasannual sales of more than $10 billion. In June 2008, Ranbaxy settled the patent disputewith Pfizer allowing them to sell Atorvastatin Calcium, the generic version ofLipitor(R)and Atorvastatin Calcium-Arnylodipine Besylate, the generic version ofPfizer's Caduet'l" in the US starting November 30, 2011. The settlement also resolvedseveral other disputes in other countries.On 23 June 2006, Ranbaxy received from the United States Food & DrugAdministration a 180-day exclusivity period to sell simvastatin (Zocor) in the U.S. as ageneric drug at 80 mg strength. Ranbaxy competes with the maker of brand-nameZocor, Merck & Co.; IVAX Corporation (which was acquired by and merged intoTeva Pharmaceutical Industries Ltd.), which has 180-day exclusivity at strengths otherthan 80 mg; and Dr. Reddy's Laboratories, also from India, whose authorized genericversion (licensed by Merck) is exempt from exclusivity.In June 2008, Japan's Daiichi Sankyo Company took a majority (50.1 %) stake inRanbaxy, with a deal valued at about $4.6 billion. Ranbaxy's Malvinder Singhremained as CEO after the transaction.The addition of Ranbaxy Laboratories extends Daiichi-Sankyo's operations - alreadycomprising businesses in 22 countries. The combined company is worth about $30billion.

After the acquisition, Ranbaxy witt operate as Daiichi Sankyo's subsidiary but will bemanaged independently under the leadership of its current CEO & Managing DirectorMalvinder Singh.The main benefit for Daiichi Sankyo from the merger is Ranbaxy'slow-cost manufacturing infrastructure and supply chain strengths. Ranbaxy gainsaccess to Daiichi Sankyo's research and development expertise to advance its brandeddrugs business. Daiichi Sankyo's strength in proprietary medicine complementsRanbaxy's leadership in the generics segment and both companies acquire a broaderproduct base, therapeutic focus areas and well distributed risks. Ranbaxy can alsofunction as a low-cost manufacturing base for Daiichi Sankyo. Ranbaxy, for itself,gains smoother access to and a strong foothold in the Japanese drug market. The immediatebenefit for Ranbaxy is that the deal frees up its debt and imparts more flexibility into itsgrowth plans. Most importantly, Ranbaxy's addition is said to elevate Daiichi Sankyo'sposition from #22 to # 15 by market capitalization in the global pharmaceutical market.

The key areas where Daiichi Sankyo and Ranbaxy are synergetic include theirrespective presence in the developed and emerging markets. While Ranbaxy's strengthsin the 21 emerging generic drug markets can allow Daiichi Sankyo to tap the potentialof the generics business, Ranbaxy's branded drug development initiatives for thedeveloped markets will be significantly boosted through the relationship. To a largeextent, Daiichi Sankyo will be able to reduce its reliance on only branded drugs andmargin risks in mature markets and benefit from Ranbaxy's strengths in generics tointroduce generic versions of patent expired drugs, particularly in the Japanese market.Both Daiichi Sankyo and Ranbaxy possess significant competitive advantages, and

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/ have profound strength in striking lucrative alliances with other pharmaceuticalcompanies. Despite these strengths, the companies have a set of pain points that canpose a hindrance to the merger being successful or the desired synergies being realized.With R&D perhaps playing the most important role in the success of these two players,it is imperative LV explore the intellectual property portfolio and the gaps that exist ingreater detail. Ranbaxy has a greater share of the entire set of patents filed by bothcompanies in the period 1998-2007. While Daiichi Sankyo's patenting activity hasbeen rather mixed, Ranbaxy, on the other hand, has witnessed a steady uptrend in itspatenting activity until 2005. In fact, during 2007, the company's patenting activityplunged by almost 60% as against 2006.Daiichi Sankyo had a more diverse technology spread compared to Ranbaxy. DaiichiSankyos focus is to develop new drugs to fill the gaps and take advantage ofRanbaxy's strong areas. To overcome its current challenges in cost structure and supplychain, Daiichi Sankyo's primary aim is to establish a management framework that willexpedite synergies. Having done that, the company seeks to reduce its exposure tobranded drugs in a way that it can cover the impact of margin pressures on thebusiness, especially in Japan. In a global pharmaceutical industry making a shifttowards generics and emerging market opportunities, Daiichi Sankyo's acquisition ofRanbaxy signals a move on the lines of its global counterparts Novartis and localcompetitors Astellas Pharma, Eesei and Takeda Pharmaceutical. Post acquisitionchallenges include managing the different working and business cultures of the twoorganizations, undertaking minimal and essential integration and retaining themanagement independence of Ranbaxy without hampering synergies. Ranbaxy andDaiichi Sankyo will also need to consolidate their intellectual capital and acquire anedge over their foreign counterparts.

Answer the following questions based on the information given in the case:

1) Explain the synergy observed by Daiichi Sankyo for acquiring a stake in Ranbaxy(3 marks)

2) Explain the type of merger involved in the case (2 marks)3) What are the post merger challenges involved? (3 marks)4) Daiichi Sankyo did not change the management of Ranbaxy. Explain (2 marks)

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