Sun Pharma, Ranbaxy to merge in Rs24,000 all-stock deal

Mumbai-based Sun Pharmaceuticals will acquire larger domestic rival Ranbaxy in a Rs24,000 crore ($4 billion) all-stock deal, to create India's largest pharmaceutical company and the world's fifth largest speciality generics company with annual emerging market sales nearing Rs6,000 crore ($1 billion).

The deal involves an equity transaction pegged at $3.2 billion and assumption of certain liabilities of Ranbaxy, currently owned by Japan' Daiichi Sankyo, the company said in a statement on Monday.

Both Ranbaxy, India's number one drugmaker, and Sun Pharma are facing problems with exporting generic medicines to the United States after drug regulator US Food and Drug Administration (US FDA) banned US import of medicines from some of the Indian facilities of the two firms.

Ranbaxy, 63.4 per cent owned by Japan's Daiichi Sankyo, is banned from exporting bulk drugs to the United States, while Sun Pharmaceutical is barred from exporting products from its Karkhadi plant.

Under the terms of the deal, Ranbaxy shareholders will receive 0.8 share of Sun Pharma for each share of Ranbaxy. The exchange ratio represents an implied value of Rs457 for each Ranbaxy share.

Daiichi Sankyo, which bought Ranbaxy in 2008, will hold about 9 per cent stake in Sun Pharma after the deal.

"In high-growth emerging markets, it (Ranbaxy) provides a strong platform, which is highly complementary to Sun Pharma's strengths. We see tremendous growth opportunities and are excited with the prospects to create lasting value for both our shareholders through a successful combination of our franchises," Dilip Shanghvi, managing director of Sun Pharma, said.

In a separate statement, Daiichi Sankyo said the US Attorney's Office in New Jersey had issued an administrative subpoena to Ranbaxy seeking information related to the company's Toansa plant in India.

Ranbaxy said it is cooperating with the information request.

Daiichi, meanwhile, has promised to provide the necessary support to resolve lingering quality problems at Ranbaxy, in which it first invested in 2008.

India's pharmaceutical industry, which supplies more than 20 per cent of the world's generic drugs, according to PricewaterhouseCoopers, suffers from a lack of oversight, including a severe shortage of regulatory inspectors.

Drugmakers in India that account for around 20 per cent of the world's cheap generic medicines, are under increasing scrutiny over quality and safety vis-à-vis branded drugs.

India supplies medicines to more than 200 countries, most of them in the emerging world, and is the second largest supplier of drugs to the United States after Canada.

Citigroup and Evercore Partners are advising Sun Pharma, while Daiichi is being advised by Goldman Sachs Group.

ICICI Securities is the financial adviser to Ranbaxy.