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CCI clears Ranbaxy-Sun Pharma merger with certain riders

Competition Commission clears Sun Pharma's $4 billion takeover with a rider that both will have to divest seven drug brands in India to avoid creating monopoly

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The fair trade regulator Competition Commission of India (CCI) has given its nod to the merger of Sun Pharmaceutical Industries and Ranbaxy Laboratories with certain riders.

The regulator said it has considered that the adverse effect of the proposed combination on competition can be eliminated by "suitable modification" under the provision of Competition Act, 2012.

"The Commission in its meeting held on December 5 approved the proposed merger between Sun Pharma and Ranbaxy, subject to the parties inter alia carrying out the divestiture of their products relating to seven relevant markets for formulations. Further, the Commission also directed that the proposed merger shall not take effect before the parties have carried out the divestiture of the products so specified as per the order of the Commission," CCI said in its order.

Both the companies will get a period of six months from the effective date for the first divesture period, whereas the second divesture period will be the period of four months from the end of the first divestiture period.

One of the preconditions of the order is that parties procure the divestment of seven products. CCI said both the companies have to divest assets in the following drug areas to stop creating monopoly — Tamsulosin & Tolterodine (Sun to divest brand Tamlet), Rosuvasatin & Ezetimibe (Ranbaxy to divest brand Rosuvas EZ), Leuprorelin (Ranbaxy to divest brand Eligard). If the divestment did not happen within the first divesture period, Sun will then have to divest its brand Lupride instead, Terlipressin (Ranbaxy to divest brand Terlibax), Olanzapine & Fluoxetine (Ranbaxy to divest brand Olanex F), Levosulpiride & Esomeprazole (Ranbaxy to divest brand Raciper L), Olmesartan & Amlodipine & Hydroclorthiazide (Ranbaxy to divest brand Triolvance).

"These products constitute less than 1% of the combined entity's revenues in India," the companies said in a joint press release. According to pharma market research firm AIOCD AWACS, the combined value of all the brands under the above categories for Sun and Ranbaxy together stands at Rs 137 crore as on October MAT 2014. Individually Sun's value for the same is Rs 83 crore and Ranbaxy standalone is Rs 55 crore.

Sun Pharma and Ranbaxy had filed the notice with the CCI on May 6,2014 and sought its approval with respect to the deal. Over the past few months, the CCI has sought information and detailed clarifications for the purposes of making its assessment.

Arun Sawhney, CEO & managing director of Ranbaxy, said, "The approval by CCI is a significant step forward. We are confident that post closure, the combined entity will enable sustainable long term growth and deliver immense value for all stakeholders."

Dilip Shanghvi, managing director of Sun Pharma, said, "The order is an important milestone for the transaction. It revalidates our view that the Sun Pharma and Ranbaxy businesses complement each other with limited product overlap, and will offer a comprehensive product basket to enable future growth. We are pleased with the open and transparent manner in which the matter has progressed."

Sun Pharma is acquiring 100% of Ranbaxy in an all-stock transaction worth $4 billion including Ranbaxy's debt of around $800 million. The combined entity would be the largest pharmaceutical company in India and the fifth-largest generic player globally by sales.

The Commission will also appoint a monitoring agency in regards to the monitoring of compliance of modification to the combination as provided in the order.

Both companies have confirmed that they will comply with the conditions laid down by the CCI within the specified time.

According to Khaitan & Co, this case has been a journey through the unknown because it is the first Phase II, detailed merger review case in India. "The case also involved a highly regulated sector, with its own peculiarities, which had to be discussed and explained to the regulator. We are very pleased that the Commission's order, after detailed scrutiny by experts, validates the synergy that the merger is expected to bring about while addressing the question of the few overlaps that existed in this case," the law firm said.

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