Sun Pharma, Ranbaxy merger deal gets conditional CCI nod

The Competition Commission of India has cleared the $4 billion merger deal between Sun Pharmaceuticals and Ranbaxy Laboratories, but with riders.

In its conditional nod to the merger, the CCI has asked the two companies to sell off seven brands which could have had an appreciable adverse effect on competition in their relevant markets after the merger.

The CCI has given a six-month window for the process, after which the deal get the final approval.

CCI chairman Ashok Chawla in an interview to CNBC TV18 said, ''CCI had studied 49 products from the merged portfolio and these seven brands affect fair competition in the market and they must be divested for the deal to go through.''

The fair trade regulator's approval comes after it called for a public scrutiny of the merger. The merger was announced in April 2014 and would create India's largest and world's fifth biggest drug-maker.

It is a definite positive for both Sun and Ranbaxy to get the conditional nod and the riders are fairly simple because the combined brand worth of the seven brands that have to be divested is less than Rs50 crore. Sun has to divest one product – its Tamlet, which has Rs3 crore sales.

Ranbaxy has to divest six brands from its portfolio. The biggest brand is Eligard, comprising the hormone drug leuprorelin, clocking annual sales of Rs30 crore for Ranbaxy. However, since Ranbaxy only just has distribution rights for this brand, in an event Ranbaxy is unable to find a buyer for its sale, Sun Pharma will divest its corresponding product named Lupride.

The other brands on Ranbaxy's divestment list are Rosuvas, Olanex, Raciper, Triolvance, Terlibax. All the five brands together have sales of Rs15 crore. So both companies are unlikely to face any material impact considering 49 brands were under the scanner and just seven brands have to be divested, which is easy and in their favour.

Most of these brands would have had more than 60-80 per cent market share post-merger and is possibly the reason why CCI said that they could have an adverse impact or the competitive nature of the market.

Sun and Ranbaxy in a joint statement said that they would comply with what the CCI has asked them. The overall basket that is to be divested is less than 1 per cent of the sales of Sun-Ranbaxy combined. The only question is what sort of valuations they can get for these products.

According to market experts, three to four times valuation for these products can be easily fetched considering Sun and Ranbaxy both have a good market value in the pharmaceutical space and command a premium.