)
The Andhra Pradesh High Court, which had last month issued interim orders restraining the proposed Sun Pharmaceutical-Ranbaxy Laboratories merger following a petition alleging insider trading, on Saturday cleared the decks for the $4-billion deal to go through by lifting the stay.
A single-judge Bench of the high court had on April 25 ordered the status quo on the basis of a plea by two petitioners — one of them a small investor in the companies. The petitioners had alleged insider trading in purchase of Ranbaxy shares by a Sun Pharma subsidiary before the official announcement of the merger on April 6. They had also sought that the court direct the Securities and Exchanges Board of India (Sebi) to probe the insider-trading angle.
In Saturday’s order, vacation judge G Chandraiah said there was no need for the status quo, as Sebi was already inquiring into the insider-trading allegations and the process of merger was outside the purview of this probe. The judge disposed of the petition and refused to set a timeframe for the inquiry as suggested by the petitioners’ counsel, K Ramakrishna Reddy. Sebi counsel Y Suryanarayana opposed the suggestion, saying there could not be any timeframe for the said inquiry since the regulator had to follow a set procedure to complete the investigation.
Merger needs more work
With Saturday’s Andhra Pradesh High Court order, the much-talked-about merger of Sun Pharmaceutical Industries and Ranbaxy Laboratories seems to have found its way back on track.
However, even after this, the deal will need to be okayed by other regulatory bodies, such as the Competition Commission of India, BSE and the National Stock Exchange, besides Sebi, which is investigating the insider-trading allegations.
Ranbaxy’s shares jumped 24 per cent and trading volumes tripled in three sessions ahead of the companies’ announcement on April 6 that Sun Pharma would buy the ailing Ranbaxy Laboratories from Japan’s Daiichi Sankyo. The proposed all-share deal includes debt of $800 million on Ranbaxy’s books.
Apart from regulatory approvals, Sun Pharma may also have to realign various other organisational and operational issues to create a single entity. For instance, experts point out, the two companies have overlapping departments that need streamlining.
The employee strength at Sun Pharma and Ranbaxy is approximately 14,000 each.
“The culture and the processes of the two companies are entirely different. Ranbaxy, before and even after the Daiichi takeover, was completely divergent from Sun Pharma. For instance, unlike Ranbaxy where the current management was not really in touch with people at the ground level or in factories, at Sun Pharma the promoters as well as the top management are involved and know what is happening where,” a senior executive in the know said.
Another industry executive considered close to Sun Pharma promoter Dilip Shanghvi said: “The transition will be smooth. It is evident from the way the company dealt with the high court order. Very swiftly, but quietly they moved the Supreme Court and got the stay lifted. This shows professionalism and efficiency.”
This is, however, also the reason for some to believe the merger of the companies might not be easy because management styles and business models of the companies are different. Ranbaxy is a good paymaster but Sun Pharma, which has a lean structure, believes in training executives internally to take up top jobs.
Many believe the merger of the two companies might see a lot of heads rolling at Ranbaxy. However, Sun Pharma has maintained it has not formulated any such plan.
The two companies will also need to streamline their product portfolio and field forces, as there is likely to be an overlap.
