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Sun Pharma to buy troubled Ranbaxy in region’s largest deal this year

New Delhi, Apr 7 (Agencies): Sun Pharmaceuticals said Monday it is acquiring Ranbaxy Laboratories, the generics drugs maker currently owned by Japan's Daiichi Sankyo, for around $3.2 billion, making it the Asia-Pacific’s largest deal in the sector this year.

Sun Pharma, a company born in Calcutta in 1983 but now run out of Mumbai, will become the largest pharmaceutical company in India, and the fifth-largest speciality generics company in the world following the acquisition.

Sun Pharma is best known in India for brands such as Pantocid, and Ranbaxy for a range of anti-invectives, and over-the-counter brands such as Volini and Revital.

Both companies face some trouble in the lucrative US market. The US Food & Drug Administration had banned imports from all four Ranbaxy plants in India, and also fined it after it pleaded guilty to felony charges relating to adulterated drugs. The FDA had also banned Sun’s Karkhadi plant from exporting to the US for violating good manufacturing norms.

Daiichi Sankyo had bought Ranbaxy in 2008, and currently holds a controlling stake of 63.4 per cent. Once the deal is concluded, Daiichi will be left with a stake of about nine per cent in Sun Pharma.

Under the agreements announced Monday, Ranbaxy shareholders will receive 0.8 share of Sun Pharma for each share of Ranbaxy. The price represents an implied value of Rs 457 for each Ranbaxy share, as of the close of business on April 4, 2014.

“The transaction has a total equity value of approximately USD 3.2 billion,” the two companies said in a joint statement.

The combined entity's revenues are estimated at $4.2 billion with operations in 65 countries, 47 manufacturing facilities across five continents, and a significant platform of speciality and generic products marketed globally, including 629 ANDAs or abbreviated new drug applications.

Sun Pharma Managing Director Dilip Shanghvi, who had set up the company in Calcutta way back in 1983, said at a conference call: “There is very little product specific overlap between Ranbaxy and Sun products. So there is enormous amount of opportunity...It gives us leadership position in chronic therapy, in acute care, hospitals… In the US which is the largest market for Sun, we can now further strengthen, with many more ANDAs waiting approval and also first to file opportunities.”

Sanghvi, however, declined to put a timeframe on expected approvals for Ranbaxy's applications in the US.

“The first important issue for us is to focus on is to achieve compliance. Only once the facility is re-certified we can look at new product approvals from this facility...all I can is promise is that it would be the most important thing for the management to achieve compliance,” Sanghvi said.

When asked about premium paid despite issues faced by Ranbaxy in the US, he said: “We'll have to look at the overall business and not at any temporary one time cost ...we believe that valuation is justified and I am confident of future for combined shareholders...

“...the quality of business of Ranbaxy from whatever we have seen is no way inferior to the quality of Sun Pharma. So it should be possible for us to find a way to make the biz profitable. How long will it is a matter of time.”

In 2013, Ranbaxy agreed to pay a $500 million fine after pleading guilty to felony charges over manufacturing and distribution of adulterated drugs in the US.

Sun Pharma said it expected to realise revenue and operating synergies of $250 million by the third year post closing of the transaction. These synergies are expected to result primarily from top line growth, efficient procurement and supply chain efficiencies.

Ranbaxy MD and CEO Arun Sahwney said the transaction brings significant value to all Ranbaxy shareholders.

The proposed transaction has been unanimously approved by the Boards of Directors of Sun Pharma, Ranbaxy and Daiichi Sankyo.

The deal will need approval by majority in number representing 75 per cent in value of the shares present and voting at the shareholder meetings of each of Sun Pharma and Ranbaxy.

On the relationship with Daiichi, Sanghvi said: “We think that the transaction not only gives us an opportunity to grow our business but also to do partnership with a global company with significant technical capability and strength and we continue to be strategic partners for Daiichi and all the agreements we have with them for the Indian market will continue to be maintained.

Daiichi Sankyo will also have an independent director on Sun Pharma board, so that gives that connectivity and that linkage would be used to strengthen the relationship going forward, he added.