Sun Pharma to acquire Ranbaxy in $3.2 bn deal

Ranbaxy shareholders will get 0.8 Sun Pharma shares for each Ranbaxy share

Sun Pharmaceutical has decided to acquire the troubled pharma company Ranbaxy Laboratories in a $3.2 billion all-share deal.

Under terms of the agreed deal, Ranbaxy shareholders will get 0.8 of a Sun Pharmaceutical share for each Ranbaxy share they own.

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, said the statement.

The combination of Sun Pharma and Ranbaxy will be the fifth-largest specialty generics company in the world and the largest pharmaceutical company in India.

Ranbaxy's underlying business has "robust growth," and profitability potential, based on which the price Sun is paying for the deal is "justified," Sun Pharmaceutical Managing Director Dilip Shanghvi said.

Sun plans to focus on remediation of compliance issues that have resulted in bans at multiple Ranbaxy plants, he told analysts on a conference call.

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 $ 4.2 billion.

Ranbaxy, 63.4% of which is owned by Japan's Daiichi Sankyo Co Ltd, is banned from exporting drug ingredients to the US. Sun Pharmaceutical's Karkhadi plant is also barred from shipping products by the US Food and Drug Administration.

Daiichi Sankyo said in a statement that it will hold a stake of about 9% in Sun Pharmaceutical after the deal.

Tokyo analysts said the move doesn't necessarily signal a pullback from India by Daiichi Sankyo.

"I wouldn't call this an exit. It's an ownership transfer," said Jefferies & Co analyst Naomi Kumagai. "Another company will take over control for them of a place that had a lot of issues. In that sense, it should be a good thing."

Citigroup and Evercore Partners are advising Sun Pharma, while Daiichi is being advised by Goldman Sachs Group and ICICI Securities is the financial adviser to Ranbaxy, the statement said.

The managing director also said Sun would continue to look for acquisition opportunities even after the Ranbaxy acquisition.