"Sun Pharmaceutical Industries Ltd and Ranbaxy Laboratories Ltd today announced that they have entered into definitive agreements pursuant to which Sun Pharma will acquire 100% of Ranbaxy in an all-stock transaction," the two companies said in a statement.
Under these agreements, Ranbaxy shareholders will receive 0.8 share of Sun Pharma for each share of Ranbaxy.
The transaction has a total equity value of approximately USD 3.2 billion.
"This exchange ratio represents an implied value of Rs 457 for each Ranbaxy share, a premium of 18% to Ranbaxy's 30-day volume-weighted average share price and a premium of 24.3% to Ranbaxy's 60-day volume-weighted average share price, in each case, as of the close of business on April 4, 2014," it added.
The combination of Sun Pharma and Ranbaxy creates the fifth-largest specialty generics company in the world and the largest pharmaceutical company in India.
The combined entity will have operations in 65 countries, 47 manufacturing facilities across 5 continents, and a significant platform of specialty and generic products marketed globally, including 629 ANDAs.
On a pro forma basis, the combined entity's revenues are estimated at USD 4.2 billion with EBITDA of USD 1.2 billion for the twelve month period ended December 31, 2013.
The transaction value implies a revenue multiple of 2.2 based on 12 months ended December 31, 2013.
Commenting on the development, the Sun Pharma Managing Director said, "Ranbaxy has a significant presence in the Indian pharma market and in the US where it offers a broad portfolio of ANDAs and first-to-file opportunities. In high-growth emerging markets, it provides a strong platform which is highly complementary to Sun Pharma's strengths.
Ranbaxy Managing Director and Chief Executive Officer Arun Sahwney said the transaction brings significant value to all Ranbaxy shareholders.
"Sun Pharma has a proven track record of creating significant long-term shareholder value and successfully integrating acquisitions into its growing portfolio of assets.
We are confident that Sun Pharma is the ideal partner to help us realise our full potential and are excited to participate in future value creation opportunities," he added.
The proposed transaction has been unanimously approved by the Boards of Directors of Sun Pharma, Ranbaxy, and Ranbaxy's controlling shareholder, Daiichi Sankyo.
Ranbaxy's board and Sun Pharma's board have recommended approval of the transaction to their respective shareholders.
The statement further said Ranbaxy has recently received a subpoena from the United States Attorney for the District of New Jersey requesting that Ranbaxy produce certain documents relating to issues previously raised by the FDA with respect to Ranbaxy's Toansa facility.
"In connection with the transaction, Daiichi Sankyo has agreed to indemnify Sun Pharma and Ranbaxy for, among other things, certain costs and expenses that may arise from the subpoena," it said.
Ranbaxy's 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.
In 2008, Japan's Daiichi Sankyo had acquired majority stake in Ranbaxy for Rs 22,000 crore.