Sun ph ranb aquisition

Presented byVithika MisraFA14058Sun Pharma-Ranbaxy Acquisition

Introduction: Pharmacy SectorThepharmaceutical industrydevelops, produces, and marketsdrugsorpharmaceuticals licencefor use asmedications. Pharmaceutical companies are allowed to deal ingenericor brandmedications 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 PharmaEstablished in 1983, headquartered in India, an international, integrated, specialty pharmaceutical companyIn 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 ofRanbaxywill 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.RanbaxyAn Indian multinationalpharmaceutical company incorporated in India in 1961 Japanese pharmaceutical companyDaiichi Sankyoacquired 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. AcquisitionApril 6, 2014:To create worlds 5th largest specialty generic pharma companyNo. 1 pharma company in India with leadership position in 13 specialty segmentsNo. 1 Indian pharma company in the USDaiichi Sankyo to become the second largest shareholder in Sun PharmaFinancial 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.

ValuationSun 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 $4 billionThe combined entitys revenues were USD 4.2 billion with EBITDA of USD 1.2 billion for the twelve month period ended December 31, 2013.Transaction HighlightsRanbaxy shareholders to get 0.8 shares of Sun Pharma stock for every share of Ranbaxy Deal size approximately US$ 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 PharmaThe 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.

ConclusionThat 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.