)
The Competition Commission of India (CCI) has approved the proposed merger between Sun Pharmaceutical Industries and Ranbaxy Laboratories, which will result in a combined entity with annual sales worth $4.3 billion, making it the fifth-largest generic drug maker globally.
The CCI nod, however, came with a rider. To ensure there is no monopoly, the commission has asked the companies to sell assets relating to seven drugs. The asset divestment could be worth about Rs 50 crore, said analysts at Nomura Financial and Securities (India). The two companies will have six months to comply with the CCI’s condition.
Sun Pharma will have to divest all products containing tamsulosin and tolterodine, currently marketed and supplied under the Tamlet brand. For Ranbaxy, all products containing leuprorelin, marketed and supplied under the Eligard brand, will have to be divested. In case Sun Pharma doesn’t divest the distribution rights of Eligard within six months, it will have to divest its products containing leuprorelin that are currently marketed and supplied under its Lupride brand, according to the CCI report.
Ranbaxy will have to divest the brands Terlibax, Rosuvas EZ, Raciper L, Terlibax, Triolvance, Olanex F.
For the merger, the two companies will also have to secure clearances from the US Federal Trade Commission and the High Court of Punjab and Haryana.
In addition to 49 relevant markets where these drugs were sold, the CCI also identified two relevant markets for formulations. In these two markets, Sun Pharma is already marketing and selling its products, while Ranbaxy has a pipeline of products to be launched in the near future.
In July, the commission had said prima facie, the proposed entity was likely to lead to an appreciable adverse effect on competition in India. “It is observed there are horizontal overlaps between the products of the parties in various molecules,” the regulator said in a report on Monday.
Analysts say the divestment of seven drugs will not have a major impact on the company in terms of market share and revenue. “The combined entity will have 300-400 brands and divesting seven of those will not be much of an issue. They have to do this within six months; that should be doable for both the companies,” said Sarabjit Kaur Nangra of Angel Broking.
To ensure there was no monopoly in the market in the future, the CCI also took into account the pipeline products of both the companies. In July, the commission had issued a show-cause notice, asking the two companies to state why an investigation should not be conducted into their proposed combination. After receiving a response, it had sought comment on the merger from the public.
The all-share deal, the largest in the pharmaceutical sector in the Asia-Pacific region this year, is seen as a rare purchase of a local rival by a leading Indian company. The buyout is valued at $3.2 billion. As Sun Pharma will also acquire Ranbaxy’s debt of about $800 million, the overall transaction value stands at $4 billion.
Under the terms of the deal, Ranbaxy shareholders will get 0.8 Sun Pharma share for each Ranbaxy share held. The deal values Ranbaxy shares at Rs 457 apiece, a premium of 18 per cent to the 30-day volume-weighted average share price.
In 2008, Daiichi-Sankyo had acquired 63.9 per cent stake in Ranbaxy for $4.2 billion. But the value of its investment has halved through the years, as Daiichi hasn't been able to ensure compliance with norms at Ranbaxy's factories supplying drugs to the US.
