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The Merger of Ranbaxy
with Daiichi Sankyo
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About Ranbaxy
Ranbaxy was started by Ranbir Singh and Gurbax Singh in
1937 as a distributor for a Japanese company Shionogi.
The name Ranbaxy is a combination of the names of its first
owners Ranbir and Gurbax.
It is India's largest pharmaceutical company.
Ranbaxy today has a presence in 23 of the top 25
pharmaceutical markets of the world. The company has a
global footprint in 43 countries, world-class manufacturing
facilities in 8 countries and serves customers in over 125
countries.
Most of Ranbaxy's products are manufactured by license from
foreign pharmaceutical developers.
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On June 10, 2008, Daiichi Sankyo agreed to take a
majority(34.8%)stake in Indian generic drug maker Ranbaxy,
with a deal valued at about $4.6 billion to create an innovatorand generic pharmaceutical powerhouse.
The combined entity now ranks among the top 20
pharmaceutical companies, globally.
For the year 2011, the company recorded Global Sales of US $2.1 Bn.
As part of the Hybrid Business Model, Daiichi Sankyo will
utilize Ranbaxy's strong manufacturing capabilities and
expertise in developing generic medicines . Under the terms of the deal, Ranbaxy became a subsidiary of
the Japanese company but would continue to operate as an
independent & autonomous Company.
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About Daiichi Sankyo
Daiichi Sankyo was established in 2005 through the merger
ofSankyo Co., Ltd. and Daiichi Pharmaceutical Co., Ltd
which were century-old pharmaceutical companies based
in Japan.
It is a global pharmaceutical company and the second
largest pharmaceutical company in Japan.
Its headquarter is based in Tokyo.
The company also owns the American biotechnology
company Plexxikon, the German biotechnology company U3
and Ranbaxy Laboratories in India.
It achieved JPY 970 billion in revenue in 2010 and is
currently ranked number 17 in world sales.
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Nature of transactions
All cash transaction.
Specific nature of the transaction Off Market Transaction.
Acquisition funded through debt and existing cash reserves.
The deal was financed through a mix of bank debtfacilities and existing cash resources of Daiichi Sankyo.
Daiichi Sankyo has taken short and long term loans of USD2.6billion which is almost 50% of the total fundingrequirement of the deal.
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Synergies
In one shot, the deal gives Daiichi access to Ranbaxysstrong network, infrastructure and market share.Ranbaxy, on the other hand, will benefit from theJapanese firms research capabilities.
Ranbaxys geographically diversified presence acrossthe globe will enable it to provide a wider reach toDaiichi Sankyos product portfolio, including India.
Ranbaxy has a small presence in the Japanese market
where the generics market holds good opportunities. Ranbaxy incurred lower interest costs, as it be came
debt-free company.
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The deal strengthened the financials of Ranbaxy
(making it debt free and cash rich)and help it grow
aggressively-organic. Ranbaxy by passed a lot of European and U.S.
companies that were finding it difficult to enter the
Japanese market, where safety and testing
requirements a real lot higher.
This deal made the amalgamated company to be the
15th largest pharma company in the world.
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Daiichi will buy the 34.8 per cent controlling stakeheld by Ranbaxys founders the Singh familyatRs 737 a share.
It will then make an open offer for up to 20 per cent ofRanbaxy shares that is mandatory under SEBI
regulations. Daiichi will also get preferential allotments of shares
and share warrants, with a goal of a minimum 50.1stake.
The dealthe second-largest foreign acquisition of anIndian company after Vodafonevalues Ranbaxy at$8.5 billion, with the offer price at a 31.4 per centpremium to its closing price.
Ranbaxy shares closed at Rs 560.75 on the BSE .
Deal Summary
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Anticipated Benefits Of the
Acquisition
Daiichi SankyoStrengthen the position of the company.
Acquisition will provide low cost manufacturing.
Market access to over 60 countries.
Ranbaxy Co LtCompany will be come one of the top 5 in generic
business.
Access to Daiichis advanced R&D facilities.
Access to Japanese drug marketInfusion of an additional $1billion into the company.
Surplus cash of Rs.3,000 c rores flows in.
The market capitalization goes to $8billion & the net
worth goes up.
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How did Daiichi acquired RanbaxyDate of
acquisition
Particulars No. of shares % of share
holding
Values in Crores
15Oct,2008 Acquisition of
share under
open offer
persuant@737
per share
9,12,77,598 20 6,727
20 Oct,2008 Acquired share
by preferential
allotment of
warrant
4,16,22,585 9.12 3,068
20 Oct,2008 Acquisition of
share from
promoter@737p
er share(first
tranche)
9,35,13,899 20.49 6,892
07 Nov,2008 Second tranche 6,53,09,121 14.31 4,813
Total 29,17,23,203 63.92 21,500
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Shares held Pre & post acquisitionShares held by Pre % Post% Change%
Singh 34.82 - 100
Singhs family 19 - 100
Daiichi Sankyo - 63.92 63.92
Mutual fund 5.56 2.58 53.59
Banks 1.71 0.32 58.47
Insurance Company 14.39 9.19 36.13
FII 12.42 4.41 64.49
General Public 12.1 19.53 61.40
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Reasons for higher valuation
The deal values Ranbaxy at $8.42billion-
An enterprise value to sales (EV/sales) of 3.5 x theestimated earnings for 2008.
An EV/EBITDA of 23 x the forward earnings for thecurrent year.
It was a very attractive multiple.
Daiichi Sankyo paid about 4.7 x Ranbaxys sales for the
acquisition, as against 2.7 x paid by Mylan for MerckKGaAs generic unit at a price offer $7.6 billion in2007.
The high valuation was due to Ranbaxys stronginfrastructure, presence across geographies, a robustproduct pipeline, including upsides from the
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Impact Analysis of the deal
on Daiichi The EPS showed a double fold increase with out much
of increase in gross profit which indicated that thereserves & surplus should have been made availableaccordingly.
The balance sheet of Daiichi Sankyo indicated that thecurrent liabilities had increased to 161% whencompared to current assets which had decreased by(15.43%).
COGS significantly decreased in the year 2008 due tothe increase in Purchase of Investments owing to theacquisition.