Govt clears Ranbaxy deal, but Japanese firm saves 10% of deal cost due to Re fall.
The delay in getting regulatory approval for its acquisition of Ranbaxy Laboratories has proven to be a blessing in disguise for Japanese pharma major, Daiichi Sankyo.
The sharp depreciation in the Indian currency over the past couple of months has brought down the deal size in dollar terms by a whopping 10 per cent. Which means Daiichi would save Rs 2,250 crore, or $445 million, just because of the delay.
The two companies had signed a definitive agreement on June 11 this year. In case the transaction was completed in 45 days, say by July 31, the deal would have cost Daiichi around $5.07 billion as the US currency was hovering around Rs 42.50 in the last week of July.
In the three-way transaction, Daiichi acquired the 34.81 per cent stake held by the Singh family. In addition, Daiichi also made an open offer.
Since the open offer has already received overwhelming response, the transaction would cost Rs 21,560 crore, which is equivalent to $4.58 billion at the rate of Rs 47 per dollar.
The cabinet committee on economic affairs approved the transaction today when the dollar was at Rs 47, a sharp fall of 10.5 per cent. “Daiichi Sankyo is now free to acquire Ranbaxy,” Finance Minister P Chidambaram said after a meeting of Cabinet Committee on Economic Affairs (CCEA). Since the deal involved investments more than Rs 600 crore it needed the approval of the CCEA.
Since the agreement was based on Rs 737 per share, the Indian shareholders are insulated from any currency fluctuation, said Malvinder Mohan Singh, chairman and managing director of Ranbaxy Laboratories.
As the actual investment is made only after getting the regulatory approval, the Japanese major would bring the money only now. According to a senior official of ICICI Securities, which is one of the advisors in the transaction, “in a deal of this nature, which needs multiple approvals, the acquirer normally ensures the transaction in the form of bank guarantee. The actual money would start coming after getting all the regulatory approval.”
Under the law, the acquirer also needs to deposit 25 per cent of the mandatory open offer in the escrow account. “Even the escrow account transaction is being funded through bank guarantee,” said a senior banker.
As part of the acquisition deal, Daiichi will also have to make an open offer for 20 per cent equity stake in another pharma company Zenotech Laboratories in which Ranbaxy owns 46.95 per cent equity stake.
Following the government approval, the Ranbaxy share price went up sharply in a falling market. The scrip gained 4.83 per cent to close at Rs 263.85 after touching an intra-day high of Rs 274.70 against the previous day’s close of Rs 251.70 on the BSE.
