Dilip Shanghvi-led firm to buy Ranbaxy for $4 billion. The all stock deal creates world's fifth-largest specialty generics company in the world
After a lot of controversies and problems, Ranbaxy Laboratories has landed in the lap of Sun Pharmaceutical Industries.
Sun, promoted by Dilip Shanghvi, would acquire Ranbaxy in a $4 billion (around Rs 24,000 crore) all stock deal, the two companies announced on Monday.
The transaction has a total equity value of $ 3.2 billion (around Rs 19,200 crore) while the rest is Ranbaxy's debt, which would be assumed by the new comapny.
Under the deal, Ranbaxy shareholders will receive 0.8 share of Sun Pharma for each share of Ranbaxy. This exchange ratio represents an implied value of Rs 457 for each Ranbaxy share, a 3.14% premium to its closing price of Rs 443 on Monday.
The transaction is expected to represent a tax-free exchange to Ranbaxy shareholders, who would own approximately 14% of the combined company on a proforma basis.
Daiichi Sankyo will become a significant shareholder of Sun and will have the right to nominate one director to Sun's Board of Directors.
The acquisition is likely to get completed by end of 2014 and will fully reflect in 2015-16 financials. Thus, in fiscal 2016, Ranbaxy will contribute around 37% of the combined sales estimated to be around of Rs 31,223 crore of the company, with Sun Pharma contributing the rest.
Post acquisition, the holding of Sun promoters in the company will be 55% while Daiichi will have about 9%. Of the total, Ranbaxy public shareholders will have about 5.2% in Sun.
The acquisition would create 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 five continents, and a platform of specialty and generic products marketed globally, including 629 ANDAs.
On a proforma basis, the combined entity's revenues are estimated $4.2 billion (over Rs 25,000 crore) with operating profit of $ 1.2 billion (over Rs 7,000 crore) for the 12 months ended December 31, 2013. The transaction value implies a revenue multiple of 2.2.
"We don't see any significant de-rating in the stock and believe that given the growth opportunities and its market share, the company will continue to trade at premium to sector valuations. Thus we maintain our 'buy' with a price target of Rs 660. We believe that Ranbaxy shareholders should hold on to their investments, given the synergies and the positives emanating from the deal," said VP, research - pharma, Angel Broking, Sarabjit Kour Nangra.
The boards of Ranbaxy and Sun have recommended approval of the transaction to their respective shareholders.
Ranbaxy offers broad portfolio of abbreivated new drug applications (ANDAs), said Dilip Shanghvi, managing director of Sun.
"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. We see tremendous growth opportunities and are excited with the prospects to create lasting value for both our shareholders through a successful combination of our franchises," he said.
Arun Sahwney, managing director and chief executive officer of Ranbaxy, said, "We believe this transaction brings significant value to all Ranbaxy shareholders. Sun 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 is the ideal partner to help us realise our full potential and are excited to participate in future value creation opportunities."
It is a big pharma consolidation of India, said Amar Ambani, head of research at IIFL.
Shares of Sun gained by 2.5% at Rs 587, on the other hand, shares of Ranbaxy declined by 3.6% to close at Rs 443 on Monday.
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