Ranbaxy board approves de-merger of new drug discovery research unit in to Ranbaxy Life Science Research Ltd

The country's top drug maker by sales, Ranbaxy Laboratories Ltd, has said that its board of directors has cleared the proposal to de-merge the company's new drug discovery research (NDDR) Unit into a subsidiary, Ranbaxy Life Science Research Ltd. (RLSRL), subject to mandatory approvals, at its meeting held today.

In October 2007 Ranbaxy CEO Malvinder Singh had announced that the company would demerge and separately list its research unit and the board had then, too, approved the spinning-off of the unit to accelerate drug discovery

For Ranbaxy the demerger is a significant step in creating an independent pathway for its new drug discovery research unit with dedicated resources and an enhanced focus for long-term growth as it has already made a substantial investment in it in terms of infrastructure and scientific talent pool.

The company says that its existing strengths in drug discovery can be more effectively leveraged through an independent vehicle that better aligns assets with priorities to accelerate the company's drug discovery programmes.

The resulting operational freedom and flexibility will also help to open up new growth opportunities while providing a platform for increased collaboration. The demerger will result in cost savings of approximately $25 million in the current year for Ranbaxy, a recurring expense, likely to increase significantly in the coming years.

"The de-merger of our NDDR unit into a separate entity establishes a robust structure to carry out path breaking research at the cutting edge of modern medicine," said Singh. "It will also enable RLSRL to create intellectual property at a faster pace while positioning it for the future".

Shareholding pattern
Under the scheme, the shareholders of Ranbaxy will be entitled to receive one equity share of Re1 each of the new entity, without any payment for every four equity shares of Rs5 each held in Ranbaxy, as on the record date, to be announced later. All assets, liabilities, research personnel and pipeline related to the research unit will be transferred to the new company.

The appointed date for the scheme to come into effect after receipt of all the requisite approvals is 1 January 2008.

Ranbaxy has subscribed to redeemable preference shares of RLSRL aggregating Rs200 crore, to meet its business needs. Post the demerger, the equity capital of RLSRL will be approx. Rs12.6 crore.

Ranbaxy and RLSRL Employees Welfare Fund Trust will respectively hold 19.8 per cent and 4.9 per cent of the equity share capital of RLSRL, with Ranbaxy shareholders holding the rest.

It is proposed that equity shares of RLSRL will be listed on the National Stock Exchange and the Bombay Stock Exchange while GDRs will be listed at the Luxembourg Stock Exchange.

All approvals required for the Scheme to come into effect, including that of the Punjab & Haryana High Court, are expected in the second half of 2008.