Ranbaxy Acquisition by Sun Pharma

Submitted by – Group no. 11

On April 6th 2014 an announcement by Sun pharma shocked stalwarts of pharma industry. The
Announcement was merger with Ranbaxy of Japan’s Daiichi Sankyo in an all stock deal. A deal which
would make Sun Pharma 5th largest speciality generics company in the world and largest
pharmaceutical company in India. Since its acquisition by Daiichi Sankyo in the year 2006 the once
star of Indian Pharmaceutical industry Ranbaxy had only seen downturns and was proved to be the
worst invested by the Japanese firm. Then what made it an attractive target for Sun Pharma?

History of Ranbaxy

Founded by Ranbir Singh and Gurbax Singh in the year 1937 as a medicine distribution company
Ranbaxy was bought by Bhai Mohan Singh in the year 1952. It was being managed by his grandsons
Manvinder and Shivinder Singh when Daiichi Sankyo approached them for an acquisition deal. The
deal was finalized in July 2008 and the company was acquired at $4.5 Billion (70% premium at them
market capitalization of the company). Then in september 2008 downfall of Ranbaxy started when
USFDA banned 30 Ranbaxy drugs in US and later banning its Tonasa, Ponta Sahib and Dewas plants
for not following CGMP guidelines and subpar quality of drugs manufactured. In the year 2013
Daiichi Sankyo sued Singh brothers in SIAC for concealing information while striking the deal. Singh
brothers pleaded guilty and made payment of 3,500 cr to the Japanese conglomerate. The platform
for this disaster was set in the year 2005 when Dinesh Thakur, Director and Global head at Ranbaxy
acted as a whistle-blower and Reported to USFDA that Ranbaxy is falsifying data and not following
CGMP practices. In 2006 USFDA issued sent warning letter to Ponta Sahib plant of Ranbaxy. Singh
Brothers sold the company when all this was not known to general public and the perceived value of
the company was way higher than the actual value reaping a huge amount of profit.

Why Sun Pharma got interested in this company?

Sun Pharma has a history of M&A deals. Its MD Mr. Dillip Sanghvi is known to acquiring troubled
companies and turning them around to be profitable. He buys companies when their perceived
value is less than the actual value and use the rest of the investment to revive the troubled
organisation and he planned to do exactly same with Ranbaxy. In the Merger deal with Ranbaxy
Daiichi Sankyo received 9% shares of Sun Pharma making it second largest shareholder of the
company. The deal was approved by both Daiichi’s and Sun’s shareholders (Daiichi shareholders
were so happy with the deal that post the announcement their share price started to increase).
Daiichi even accepted that it will bear some cost of proceedings with USFDA regarding the banned
plants of Ranbaxy.

Rationale behind the deal