The Daiichi Sankyo-Ranbaxy deal is facing a new hurdle, following an objection from the stock exchanges over completing the stake sale transaction through the block deal window, forcing the Ranbaxy promoter Malvinder Singh and family to pay about Rs 1,000 crore from the gains as tax to complete the transaction.
Sources said instead of the planned block deal transaction, which does not attract tax, the deal can be done only through a direct share sale between the promoters and Daiichi. This will attract a long-term capital gains tax of 10 per cent on the transaction, which is about Rs 1,000 crore.
"Our deal with Daiichi-Sankyo is on track and is progressing as scheduled. But, we are not in a position to comment on the modalities of the transaction," said a Ranbaxy spokesperson.
Malvinder Singh and family had signed a deal in early June this year to sell their entire 34.8 per cent stake to the Japanese company for Rs 9,578 crore at Rs 737 per share, a premium of about 31 per cent over the prevailing share price. The deal was valued at about $4.6 billion (Rs 19,780 crore).
A tax expert with a leading analyst firm said the Ranbaxy promoters would have to pay a maximum of 11.33 per cent as tax on the difference between the sale price and cost price of each of the shares which are held for more than 12 months.
Sources said merchant bankers had approached the stock exchanges to ask whether the shares could be put through the block deal window. However, regulations require the price at which the block deal takes place should not be more than one per cent of the current market price of the shares. Ranbaxy shares are currently trading at Rs 266.35 a share, a difference of 63.5 per cent below the deal price of Rs 737 a share.
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Sources said the company had approached the Securities and Exchange Board of India (Sebi) seeking a special exemption since it did not meet these conditions. Sebi refused the exemption, so the Daiichi-Ranbaxy deal will now be an off-market transaction, informed sources with the stock exchanges.
A few days ago, Malvinder Mohan Singh, managing director of Ranbaxy, had said the share transaction should be completed before December, instead of the earlier announced timeline of March 2009.
“The development will not have any impact on the company, but will force promoters and other individual shareholders who offered their shares to bear the tax burden involved in this transaction,” said Ranjit Kapadia, Head of Research and and an investment expert with Prabhudas Lilladher. Daiichi-Sankyo also had an open offer for 20 per cent of Ranbaxy’s shares for about 9.2 crore shares, at Rs 737 a share to gain a controlling stake in the company.The open offer was subscribed about two times.