m&a term paper final

8/19/2019 M&a Term Paper Final

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INDIAN INSTITUTE OF

MANAGEMENT INDORE

Mergers & Acquisition

Term Paper: Acquisition of Ranbaxy by

SunPharma

Submitted to:

Prof.D. L Sunder

Submitted

by:

Section A Grou !

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Post'c)uisition Sta#e.............................................................................14

"# Merger &losing Phase an) Post%%er#er "ntegration Plans to O'erate the Venture %..14

aluation....................................................................................................... 14

R5678'-9R: ISS75S......................................................................................1;

'N-ICIP'-5+ P9S- %5R65R IN-56R'-I9N ISS75S........................................1<

'nneure........................................................................................................1/

Re*erences.....................................................................................................22

Introduction to t5e P678ersSun Pharma

Sun Pharmaceuticals was establishe) by Mr# +ili= Shan#hvi in *+,- in a=i with five

'ro)ucts to treat =sychiatry ailments# &ar)iology 'ro)ucts were intro)uce) in *+,.

followe) by #astroenterolo#y 'ro)ucts in *+,+# /o)ay it is the largest com'any in

chronic 'rescri'tion an) a market lea)er in 'sychiatry0 neurology0 car)iology0 ortho'e)ics

etc#

/he 12*3 acquisition of Ranbaxy will make the com'any the largest manufacturer of

'harmacy 'ro)ucts in "n)ia an) the 4th largest in generics 'ro)ucts globally

Over .15 of the &om'any6s Sales come from markets outsi)e "n)ia# /he 7S is the single

largest market accounting for aroun) 825 of the total revenues# Manufacturing

o'erations are in 18 locations inclu)ing countries like 7S0 &ana)a0 $ra9il an) "srael#

"n the 7S0 the com'any markets a large basket of generics0 with a strong 'i'eline

awaiting a''roval from the 7#S# :oo) an) Drug A)ministration ;:DA<

/he com'any was liste) on the stock exchange in *++4 an) was back then oversubscribe)

44 times# /o)ay it is one of the most 'rofitable 'harma com'anies in "n)ia#

http://en.wikipedia.org/wiki/Dilip_Shanghvihttp://en.wikipedia.org/wiki/Vapihttp://en.wikipedia.org/wiki/Psychiatryhttp://en.wikipedia.org/wiki/Gastroenterologyhttp://en.wikipedia.org/wiki/Food_and_Drug_Administrationhttp://en.wikipedia.org/wiki/Food_and_Drug_Administrationhttp://en.wikipedia.org/wiki/Dilip_Shanghvihttp://en.wikipedia.org/wiki/Vapihttp://en.wikipedia.org/wiki/Psychiatryhttp://en.wikipedia.org/wiki/Gastroenterologyhttp://en.wikipedia.org/wiki/Food_and_Drug_Administration


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Acquisitions an) =oint Ventures

"n *++8 Sun Pharma 'urchase) a bulk )rug manufacturer >ohli 'harmaceuticals# "n *++,

Sun Pharma acquire) a number of res'iratory bran)s from ?atco 'harma# "n 12*20 the

com'any acquire) a large stake in /aro Pharma0 "nc# amongst the largest generic )erma

com'anies in the 7S0 with o'erations across &ana)a an) "srael# "n 12**0 Sun Pharma

entere) into a @oint venture with MSD to bring com'lex or )ifferentiate) generics to

emerging markets

Ranbay

"t6s an "n)ian multinational 'harmaceutical com'any that was incor'orate) in *+8*#/he

&om'any went 'ublic in *+.3 an) =a'anese 'harmaceutical com'any Daiichi

Sankyo acquire) a controlling share in 122,# /he com'any was starte) by Ranbir Singh

an) urbax Singh as a )istributor for a =a'anese com'any in *+-.#

Ranbaxy has been involve) in several issues with :DA# "n 122+ the 7S :oo) an) Drug

A)ministration sai) it halte) reviews of all )rug a''lications inclu)ing )ata )evelo'e) at

RanbaxyBs Paonta Sahib 'lant in "n)ia because of a 'ractice of falsifie) )ata an) test

results in a''rove) an) 'en)ing )rug a''lications# "n 12*1 Ranbaxy halte) 'ro)uction

an) recalle) forty%one lots of atorvastatin )ue to glass 'articles being foun) in some

bottles# "n 12*- 7S :DA fine) 422 million for mani'ulation generic )ata an) selling

a)ulterate) )rugs to 7nite) States#

Acquisition

"n =une 122,0 Daichi Sankyo acquire) a -35 stake in Ranbaxy for 1#3 billion 7SD# "n

?ovember 122, Daichi Sankyo com'lete) the takeover of the com'any from the Singh

family# RanbaxyBs Malvin)er Singh remaine) as &(O after the transaction# "n the same

year0 it reache) settlement on the worl)Bs two highest selling )rugs % Ci'itor ;with Pfi9er<an) ?exium ;with Astra eneca


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Industr8 /7c9ground

"n)ia6s 'harmaceutical sector has seen unwavering growth in the 'ast few years0 going u'

to 1- billion 7SD in 12*1 from 1- billion 7SD in 1221# /he 'harmaceutical sector in

"n)ia has been growing consistently at the rate of *-%*3 5 every year since the last five

years an) is ex'ecte) to touch 44 billion 7SD by 1212# enerics are ex'ecte) to continue

to )ominate the market while 'atent%'rotecte) 'ro)ucts are likely to constitute *2 'er

cent of the market till 12*4#

"n)ian 'harmaceutical in)ustry com'anies can broa)ly be classifie) as )omestic

com'anies an) foreign com'anies ;M?&s


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"n)ia has attracte) Direct :oreign "nvestment of 7SE **0-+*#2- million from A'ril 1222%

12*- an) will see an u'surge in the years to come# $io'harmaceuticals is also

increasingly becoming an area of interest given the com'lexity in manufacture an)

limite) com'etition#

/he )omestic 'harmaceutical market has seen a growth of *-#4 5 an) recor)e) total

sales of Rs 80,,- crore ;7SE *#*1 billion< in the month of =uly 12*-# /he ma@or reasons

for this growth can be attribute) to continual growth in 'rolonge) thera'ies0 increasing

sales of generic me)icines an) strengthening hol) over rural markets#

/he nee) of skille) man'ower in the 'harmaceutical in)ustry ranges wi)ely from RFD0

Guality Assurance ;GA


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2012 Dusa !"armaceuticals Acquire) a )evelo'er of a )ermatological )evice use) to

treat actinic keratoses

2011 #oint $enture %it" &'D =oint Venture with a focus on emerging markets

2010 Caraco !"armaceutical

a(oratories

"nitial stake investment in *++.0 *225 takeover in 12*2

2010 Taro !"armaceutical )n*ustries

imite*

Acquire) ma@ority stake in a multinational generic

manufacturer with establishe) ?orth America 'resence an)

a strong )ermatology franchise

200+ !ro*ucts from ,orest a(-s

)n%oo* Di.ision

200/ C"attem C"emicals

)ncorporate*

Acquire) a manufacturer of controlle) substances with an

AP" facility

200 Assets of A(le a(oratories Acquire) controlle) substance manufacturing assets#

200 ungarian perations an*

,ormulation !lant of )C

Acquire) Alkaloi)a6s controlle) substance AP"s an) )osage

form manufacturing 'lant#

2004 !ro*ucts from 5omen-s first

ealt"care

2004 !"lo6 !"arma Acquire) manufacturer of ce'halos'orin AP" hol)ing 7SA

an) (uro'ean a''rovals

2002 !"arma "nitial stake investment in *++80 *225 takeover in 1221#

Acquire) 'lant with 7S:DA an) 7>MIRA a''rovals for

oral )osage forms

2000 !ra*eep Drug Company &hennai base) AP" manufacturer is merge) with Sun

Pharma#

1+++ &ilmet a(oratories Iel'e) initiate entry in o'hthalmology

1+++ Gu7arat y8a rganics "nitial stake investment in *++80 *225 takeover in *+++#Acquire) &e'halexin an) .AD&A actives manufacturing

site

1++/ !ro*ucts from atco!"arma Iel'e) initiate entry in chest an) res'iratory thera'y areas

1++9 Tamilna*uDa*"a Iel'e) initiate entry in oncology an) gynaecology


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!"armaceuticals imite*

1++: Bul8 Drugs !lant from ;noll

!"arma

Acquire) an AP" 'lant in Ahme)nagar0 Maharashtra

Acquisition of R7n=7>8 =8 D7iic5i S7n98o

+aiichi San"yo

Daiichi Sankyo &om'any Ct) is a global 'harmaceutical com'any an) the secon) largest

'harmaceutical com'any in =a'an# "t was establishe) in 1224 through the merger of

Sankyo &om'any0 Cimite) an) Daiichi Pharmaceutical &om'any0 Cimite)# "t achieve)

=PJ *0*3,#1bn in revenues in 12*-#

-he ta"eover o* Ranbay

On =un **0 122, Ranbaxy announce) that a bin)ing share 'urchase an) share

subscri'tion was entere) between Daiichi Sankyo an) Ranbaxy# Hith a 'urchase 'rice

Rs# .-. 'er share0 the transaction is value) at 7S E3#8 billion# Daiichi Sankyo acquire)

-3#,5 stake# "t ma)e an o'en offer to Ranbaxy sharehol)ers for another 125# "t 'icke)

u' another +#*15 through 'referential allotment# "t was an all%cash transaction# "t was

fun)e) through a mix of bank )ebt facilities an) existing cash reserves of Daiichi

Sankyo# /he )ebt was of value 7SE 1#8 billion which is almost 425 of total fun)ing

require) for the )eal#

/he ?omura Securities &o Ct)0 the @a'an hea)quartere) investment bank0 acte) as the

exclusive financial a)visor# =ones Day as the legal a)visor outsi)e "n)ia# Mehta Partners

CC& as the strategic business a)visor an) (rnst F Joung as the accounting an) tax

a)visor# /he Religare &a'ital markets Cimite) acte) as exclusive financial a)visor to

Ranbaxy an) the Singh family# Vaish associates were the legal a)visors

Strate#ic obectives and Syner#ies behind the deal

Daiichi Sankyo wante) to )iversify geogra'hically an) es'ecially 'aving its way into

emerging markets like "n)ia# /he )eal woul) hel' Daiichi Sankyo to enter into non%

'ro'rietary )rugs an) take a)vantage for Ranbaxy6s strong areas# /he acquisition of


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Ranbaxy by Daiichi re'resents a ma@or entry for the =a'anese firm into the high growth

business areas of generic )rugs#

Syner#ies

a &onsi)ering that Ranbaxy is a generic com'any an) Daiichi Sankyo an innovator

com'any0 both businesses com'lement each other with negligible overla'#

b Ranbaxy 'rovi)es a low cost manufacturing set u' to Daiichi Sankyo#

c Ranbaxy has a small 'resence in the =a'anese market where the generics market hol)s

goo) o''ortunities

) Also Ranbaxy incurre) lower costs0 as it became )ebt free com'any

e Ranbaxy geogra'hically )iversifie) 'resence across the globe will enable it to 'rovi)e

a wi)er reach to Daiichi Sankyo6s 'ortfolio0 inclu)ing "n)ia#

f /he )eal ma)e the amalgamate) com'any to be the worl)6s *4th largest

'harmaceutical com'any in the worl)#

g Ranbaxy by'asse) a lot of (uro'ean an 7#S com'anies that were unable to enter the

=a'anese markets )ue to its stringent safety an) testing requirements#

Market reactions to the acquisition announcement

/he share 'rice of Ranbaxy Caboratories rose by -#,85 to Rs 418#32 on =une +th 122,#

Daiichi Sankyo agree) to 'ay as much as E3#8 billion for a 42#*5 stake in Ranbaxy# Cater

the stock en)e) almost at Rs 482#,2 on =une **th 122,# On =une *-th 122, it s'ike) to

Rs 882 an) settle) finally at 48.#.4 'oints0 u' a mere 2#*45

Overview of Ranbaxy laboratories Valuation

Daiichi Sankyo 'ai) about 3#.x Ranbaxy6s sales for the acquisition0 as against 1#.x in asimilar )eal between Mylan for Merck >aA6s generic unit at a 'rice of E .#8 billion in

122.# /he higher valuation was )ue to Ranbaxy6s strong infrastructure0 'resence across

geogra'hies0 a robust 'ro)uct 'i'eline0 inclu)ing u'si)es from the settlements


10/25

Aftermath of Deal

/he (PS showe) a )ouble fol) increase without much of increase in gross 'rofit which

in)icate) that the reserves F sur'lus shoul) have been ma)e available accor)ingly# /he

balance sheet of Daiichi Sankyo in)icate) that the current liabilities ha) increase) to*8*5 when com'are) to current assets which ha) )ecrease) by ;*4#3-5


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billion for the twelve month 'erio) en)e) December -*0 12*-#/he transaction value

im'lies a revenue multi'le of 1#1 base) on *1 months en)e) December -*0 12*-#

"nvestor res'onse to the announcement was lukewarm0 with the stock 'rices moving in

o''osite )irection# As an imme)iate effect0 shares of Sun Pharma went u' to 1#.5 in the

morning tra)e after the acquisition announcement while that of Ranbaxy went )own by

-#*5#

/he swa' ratio of , shares of Sun 'harma for every *2 shares of Ranbaxy works to the

a)vantage of the new entrants into Ranbaxy Caboratories Ct)# as at the 'revailing 'rice

they now nee)s to 'ay 45 less for getting the shares of sun 'harma as com'are) to

buying them )irectly from the market#

/here also lies a matter of uncertainty regar)ing the regulatory troubles facing Ranbaxy

an) how soon sun 'harma with a recor) of acquiring trouble) com'anies at goo) 'rice

an) later turning them aroun)0 can resolve these troubles facing Ranbaxy# Sun 'harma6s

goo) track recor) regar)ing turning aroun) the acquire) com'anies can instil some ho'es

among the investors#

/he move is seen to im'rove Sun 'harma6s global 'resence by 'rovi)ing it access to new

an) emerging markets an) 'ro)uct 'ortfolios with Sun 'harma having a 'resence in

chronic )iseases while Ranbaxy having relevant 'resence in acute an) O/& segments#

$esi)es with the acquisition of Ranbaxy0 Sun 'harma will a)) to its overall

manufacturing base that is ex'ecte) to rea' benefits in the long run# Overall0 market

'erceive) the )eal as a win%win situation for all the 'arties involve)#

'un !"arma Ran(a6y &erger


12/25

Pre'c)uisition Sta#e

"# Making Decision to $uy %

Ranbaxy Caboratories Cimite) is an "n)ian multinational 'harmaceutical com'any with a

si9eable )rug 'i'eline0 a very 'romising future an) has announce) some big 'ro)uct

launches in future in the 7S generics market0 but for frequent run%ins with the 7S )rug

regulator# "t has been facing regulatory issues for the last -years an) now has cease) to

make some 'rofits# Iowever0 the com'any has a big business an) huge 'ro)uct 'ortfolio

across various markets inclu)ing "n)ia which makes it an attractive )eal for Sun Pharma

to acquire this com'any# Daiichi ;a =a'anese com'any


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/his 'rocess has reveale) )etails about Ranbaxy an) the merger as mentione) below!

Sun Pharma6s revenue will @um' by a healthy 325 but its o'erating 'rofit will rise by

a @ust .#450 base) on 'ro forma 12*- financials# Ranbaxy6s 'rofits have been hit by 'rovisions relate) to foreign exchange an)

inventory write%offs# Sun Pharma has sai) it ex'ects to get Rs#*0442 crore in merger%

relate) synergies by the thir) year after the acquisition is com'lete)# /hat is fairly

significant an) these savings shoul) be from 'rocurement0 sales growth an) su''ly

chain efficiencies# /he merger will have a negative effect on Sun Pharma6s 'erformance in the short

term re)ucing its o'erating 'rofit margin from 33#*5 to 1+#15# "n terms of si9e0 Sun Pharma will have a 'ro forma 12*- revenue of Rs#140+** crore

an) an o'erating 'rofit of Rs#.04.. crore0 with a net 'rofit of Rs#*0.*2 crore#

"""# Process "nitiation Pro'osal Phase %

"n 'rocess initiation0 acquiring com'any sen)s a 'ro'osal for a merger or an acquisition

to the target com'any with com'lete )etails of the )eal inclu)ing the commitments0

amount an) the strategies# "t is a non%bin)ing offer )ocument which is not available in

o'en 'ublic forum# Sun Pharma has hire) Mc>insey F &om'any to facilitate the merger

of the two lea)ing 'harmaceuticals in the )omestic market# Mc>insey ha) been given a

clear man)ate0 inclu)ing integration0 rationalisation an) ca'acity utilisation#

"V# Structuring $usiness Deal %

Once the merger is finali9e) i#e# either forming a new entity or the take%over0 acquiring

com'any has to take initiatives for creating strategies to announce the launch0 enhance

)eal6s cre)ibility an) its marketing# /his stage em'hasi9e on giving a 'ro'er structure to

the business )eal# /he roa) ma' inclu)es0

Regulatory a''rovals from various bo)ies such as S($"0 &&"0 Stock (xchanges0 Iigh

&ourts of u@arat0 Iaryana an) Pun@ab0 an) the stakehol)ers of both com'anies Streamlining of teams

Resolving regulatory issues at Ranbaxy 'lants un)er 7S im'ort alert

Restructuring of 'ro)uct 'ortfolios to align with the interests of Sun Pharma

$enchmark the staff%'ro)uctivity ratio


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. inancial Settlement 5chan#e o* Stoc"s

Ranbaxy sharehol)ers will receive 2#, shares of Sun Pharma for each share of Ranbaxy#

/he exchange ratio re'resents an im'lie) value of Rs 34. 'er Ranbaxy share an) the

transaction has a total equity value of a''roximately E-#1bn# After the )eal0 Daiichi will

hol) a stake of about +5 in Sun Pharma# Ience0 the )eal is cashless#

Post'c)uisition Sta#e

"# Merger &losing Phase an) Post%%er#er "ntegration Plans to O'erate the Venture

%

/his stage inclu)es the 'rocess of 're'aring the official )ocuments0 signing the

agreement on which both the com'anies have agree) u'on0 an) negotiating the )eal# "t

inclu)es integration of the com'anies )iffering on various 'arameters# "t also )efines the 'arameters of the future relationshi' between the two# After signing the agreement an)

entering into the venture0 Sun Pharma has various 'lans as liste) below!

"t has a )etaile) turnaroun) 'lan for its new 'urchase#

/he com'any6s basic structure an) functions coul) be manage) in the first year# /here

is a 'lan to streamline an) rationalise functions# Hhile it will take at least two to three

years to turn%aroun) the merge) entity an) to ensure contributions from the buyout# "t has 're'are) a three%'ronge) strategy which inclu)es!

Resolution of regulatory issues "ntegration of su''ly chain an) fiel) force for enhance) efficiency an)

'ro)uctivity Iigher growth through synergy in )omestic an) emerging markets#

"t is targeting to engineer the full turnaroun) of Ranbaxy in three%year to four%year

'erio) after the closure of the transaction#

"76u7tion?

Sun Pharmaceutical "n)ustries Ct)# an) Ranbaxy Caboratories Ct) on A'ril 280 12*3

announce) that they have entere) into )efinitive agreements 'ursuant to which Sun

Pharma will acquire *225 of Ranbaxy in an all%stock transaction# 7n)er these

agreements0 Ranbaxy sharehol)ers will receive 2#, share of Sun Pharma for each share of

Ranbaxy# /his exchange ratio re'resents an im'lie) value of Rs#34. for each Ranbaxy


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share0 a 'remium of *,5 to Ranbaxy6s -2%)ay volume%weighte) average share 'rice an)

a 'remium of 13#-5 to Ranbaxy6s 82%)ay volume%weighte) average share 'rice0 in each

case0 as of the close of business on A'ril 30 12*3#

On a 'ro forma basis0 the combine) entity6s revenues are estimate) at 7SE 3#1 billion

with ($"/DA of 7SE *#1billion for the twelve month 'erio) en)e) December -*0

12*-#/he transaction value im'lies a revenue multi'le of 1#1 base) on*1 months en)e)

December -*0 12*-#

REGULATOR0 ISSUES

/y'ically0 &&" takes )ecisions relate) to mergers an) acquisitions ;MFAs< within -2

)ays0 though it can )o so within 1*2 )ays of the filing of a''lication in this regar)# After

that a 'ro'ose) )eal is )eeme) to have been a''rove)#

/he 'ro'ose) merger also requires a''rovals from stock exchanges0 Sebi0 the high courts

of u@arat0 Pun@ab an) Iaryana0 cre)itors an) sharehol)ers of both com'anies# As cite)

by a &&" official! N"t is an im'ortant case an) there are various com'lexities involve)# "t

requires close evaluation

:our )omestic manufacturing facilities of Ranbaxy have been banne) from su''lying

'ro)ucts to the 7S0 following the 7S :oo) an) Drug A)ministration fin)ing serious

violations of its norms at these units# Resuming su''lies from these 'lants to the 7S is

im'ortant for Sun Pharma0 as the 7S is the largest ex'ort market for both com'anies#

Hhen the 'ro'ose) acquisition was announce) in A'ril0 Shanghvi ha) a))ressing the

concerns of regulatory agencies worl)wi)e were a 'riority#

"n the last week of August0 "n)ia6s antitrust regulator has or)ere) a secon)%stage

investigation into the merger of Sun Pharmaceutical "n)ustries Ct) an) Ranbaxy

Caboratories Ct)0 citing the risk that the )eal coul) harm Nnational interest by resulting

in significant market )omination by the combine) entity#

/his is the first time the &om'etition &ommission of "n)ia ;&&"< has )eci)e) on a

secon)%stage inquiry0 which follows a 'reliminary investigation of a )eal0 an) raise) such


16/25

an ob@ection# /he watch)og will )eliver a final ruling after hearing from the com'anies

again an) seeking 'ublic fee)back on the transaction# /he 'ossible ri''le effect of the

merger on 'rices of life%saving0 essential me)icines in the "n)ian market ha) 'rom'te)

the antitrust bo)y to issue a show%cause notice in =uly0 asking the two com'anies why a

'ublic investigation shoul) not be or)ere) into the )eal

/he merger will create "n)ia6s biggest )rug maker with an ,#45 share of the

'harmaceutical market0 worth an annual Rs#.80222 crore by sales# 7n)er "n)ia6s merger

an) acquisition ;MFA< rules0 com'anies nee) &&"6s a''roval if the combine) assets of

the two entities are worth more than Rs#*0422 crore or their combine) revenue amounts to

more than Rs#30422 crore in "n)ia# /he &&" a''roval is also man)atory if the com'anies

have assets outsi)e "n)ia0 or their combine) assets are worth more than E.42 million ;Rs

30488 crore


17/25

E3%billion Sun Pharma%Ranbaxy )eal by the en) of this month# &&" aske) them ;the two

com'anies< to come u' with some reme)ial measures which they have submitte) an)

&&" is stu)ying the same#

"nvestment bankers for the two com'anies are reworking the )eal to allay the

&om'etition &ommission6s concerns0 an) the )ecision on a new structure woul) likely be

ma)e in December#

ANTI2IPATED POST MERGER INTEGRATION ISSUES

A ma@or u'si)e from the )eal coul) be for RanbaxyBs 'ro)uct 'ortfolio# /hough many of

the first%to%file a''lications of the com'any are 'en)ing in the 7S0 they have the 'otential

to give a ma@or boost to revenues once a''roval comes through# Hhile the )eal has got

thumbs u' from most0 even with all the 'ositives this merger brings on challenges that

Sun will have to face on the groun)!#

*! Achieving &om'liance

Hith the baggage of regulatory issues0 the biggest challenge for Sun Pharma will be to

restore an) regain trust an) confi)ence of the regulators0 es'ecially in the 7S# :our of

Ranbaxy 'lants are banne) by 7S:DA an) is un)er an ongoing consent )ecree

1! Re'utational Risks!

"t will be a challenging ri)e for Sun Pharmaceutical "n)ustries Ct) to align Ranbaxy

Caboratories Ct) with its business given the regulatory hur)les an) cultural )ifferences#

/he re'utation which Dili' Shanghvi0 foun)er an) managing )irector of Sun Pharma0 has

earne) for turning aroun) )istresse) businesses will once again be 'ut to test# /he

investor community will be closely watching each an) every move he makes in or)er to

integrate Ranbaxy with Sun Pharma#

-! "ntegrating Marketing :orces

/he two com'anies o'erate across )ifferent geogra'hies an) their ob@ectives may )iffer#

/he synergies get )ifficult to extract# Proce)ures an) technology have to be integrate)#


18/25

/here can be two kin)s of synergies# One coul) be 'ro)uct synergy! there coul) be some

thera'eutic segments where Sun Pharma is strong while Ranbaxy coul) be strong in other

areas# Similarly0 there coul) be some geogra'hical synergies as well! for instance0

Ranbaxy is struggling in the 7S an) Sun Pharma6s groun) 'resence in that country coul)

'rove to be useful#

/he combine) Sun%Ranbaxy entity will be the un)is'ute) lea)er in the "n)ian market

with +#1'ercent market share#

Hhile the merger will 'um' u' the feet on groun) 'resence for Sun Pharma in "n)ia to an

enviable 'resence %% a combine) strength of +222 me)ical re'resentatives K this will lea)

to the biggest o'erational challenge# Marrying the two culturally )ifferent marketing

entities will be a key task for Sun# /he two com'anies have o'erate) un)er )ifferent

work cultures0 giving )ifferent margin bonuses an) streamlining the two to a common

'latform will be crucial for Sun to maximi9e on the merger6s "n)ia a)vantage# Sun

though is confi)ent an) says the com'limentary 'ortfolios will see 7SD 142 million

synergies by the en) of thir) year#

3! Managing Multi'le 7nits

/he merger gives Sun gran) global ex'osure# /he combine) entity will have 3.

manufacturing facilities across 4 continents# /his )iverse number of 'lants woul) mean

increase oversight F coul) be a regulatory nightmare# (x'erts 'oint out that Sun may

eventually have to look at hiving off or consoli)ating some of them the manufacturing

ca'acities# Also because there coul) be some overla's an) not all ca'acities may be

nee)e)#

4! Ranbaxy $ran)

/he Ranbaxy bran) will cease to exist# /hough this is not a challenge really0 but one ofthe ol)est generic )rug bran)0 one with the highest recall value will cease to exist

eventually# (x'erts say this may lea) to some confusions in the market s'ace an) im'act

the morale of the Ranbaxy em'loyees an) will be on Sun Pharma to rebuil) on that#

>6"i(its


19/25

>6"i(it 1= Acquisitions (y 'un!"arma o.er t"e years

?'ource= 'un@Ran(a6y )n.estor !resentation

Anne>ure

a< Hhat is the strategic motive for the merger acquisition from the (uyers 'ers'ective

Sun Pharma6s managing )irector Dili' Shanghvi has acquire) a re'utation for acquiring

com'anies in trouble at a goo) 'rice0 an) then turning aroun) their o'erations# Analysts

felt that this is a goo) acquisition for Sun Pharma as it will hel' it fill thera'eutic ga's in

the 7S0 get better access to emerging markets an) strengthen 'resence in the )omestic

market# Some of the motives behin) the merger is summari9e) below%


20/25

• /he merger woul) create the worl)6s 4th largest s'ecialty generic 'harma

com'any

• ?o# * 'harma com'any in "n)ia0 one of the fastest growing markets

•

?o# * "n)ian 'harma com'any in 7S market%Over 7SE 1 billion in sales

%Pi'eline of *,3 A?DAs inclu)ing high%value :/:s

%?o# * in generic )ermatology0 ?o# - in bran)e)

• A''roaching 7SE * billion sales in high%growth emerging markets inclu)ing

Russia0 Romania0 South Africa0 $ra9il F Malaysia

• (x'an)ing 'resence in Hestern (uro'eL merge) entity to have global foot'rints in

over 44 key markets

• (xtensive Pro)uct $asket K largely $ran)e) business with minimal overla'

• Strong Doctor Relationshi's an) o''ortunities to leverage market 'resence to

cross%sell 'ro)ucts

• 7SE 142 million of revenue Fo'erational synergies by -r) year 'rimarily )erive)

from to'%line growth0 an) 'rocurement F su''ly chain efficiencies

• /he 7S :oo) an) Drug A)ministrationBs a''roval to ?exium an) Diovan coul)

'rovi)e benefits of E-22%322 million net income in the short term

b< Synergies that can be realise) an) value of the synergies

Accor)ing to the analysts at Sun 'harma0 it ex'ects to realise its merger relate) synergies

by the thir) year of acquisition# /he synergies that it ex'ects to obtain are the revenue an)

o'erational synergies resulting from sales growth0 'rocurement an) su''ly chain

efficiencies#

/he ex'ecte) value of the synergies is E142 million or *442 crore from merger relate)

synergies by thir) year after the acquisition is com'lete)#

c< D&: metho) for Valutaion

,iscal !erio* &arc" ?in )R crores 2014 201 201: 2019

'ales *-0232#-2₹ ₹ ₹ ₹


21/25

*10+33#,2 *10+*1#+2 *-04..#22

perating income ?>B)TDA +.-#12₹ ₹1014+#,2

₹*0..4#32

*0+.4#12₹

perating profit ?>B)T >30+.#22 > *08,+#22

> *-08-#22

> *042-#22

ta6es -3-#42₹ -**#22₹ -1-#22₹ 3,,#22₹

!AT >B)T?1@t > *4-#4#22 > *-.,#,2

₹*0232#22

*02*4#22₹

DEA 3.8#12₹ 4.2#22₹ 3*1#32₹ 3.*#,2₹

cape6 .,2#+2₹ 3+4#*2₹ 4-2#*2₹ 411#32₹

c"ange in 5C -18#22₹ -13#22₹ -1-#22₹ --+#22₹

,ree Cas" ,lo% % 3..#.2₹ ₹*0*1+#.2

4++#-2₹ 814#,2₹

Terminal $alue ₹1303*8#+,

5ACC ,#.15

,#.15 % 3..#.2₹ ₹*0*1+#.2

4++#-2₹ ₹140231#.,

)mplie* firm .alue ?in )R crores 1/+0+F3

Reference $alues

5* ,45

5e *45

Beta 2#4+

Rf ,5

Rm@Rf ,5

;e *-5;* *15

Ta6 -35

'ources

Qwww#moneycontrol#com

QQReuters

QQQwww#investing#com

QQQQ(J%in)ia%cost%of%ca'ital%a%survey#')f

)< /ransaction multi'les

D7te T7rget Acquirer E"@E/ITDA

=un%*3 &ovi)ien Me)tronic 1(.

:eb%*3 Arthro&are &or' Smith F ?e'hew 20.


22/25

Se'%*- ambro A$ $axter "nternational 12.

:eb%*- PSS Horl) Me)ical Mc>esson &or' 1;.(

A'r%*- Cife /echnologies /hermo :isher 12./

Se'%*1 &hina >anghuiIol)ings

Me)tronic 1


23/25

e< /he )eal has no tax im'lications for the sharehol)ers of Ranbaxy# /he transaction is

ex'ecte) to re'resent a tax%free exchange to Ranbaxy sharehol)ers who are ex'ecte) to

own *35 of the combine) com'any# /he share%swa' transaction0 wherein for one share

of Ranbaxy sharehol)ers will get 2#, shares of Sun Pharma0 is not consi)ere) as a

BtransferB un)er tax laws an) no ca'ital gains will arise in the han)s of the Ranbaxy

sharehol)ers# Cong term ca'ital gains are exem't from tax an) only a nominal security

transaction tax is 'ayable#

f< /he con)itions un)er which the )eal coul) fail are the following

• Sun Pharma has to check the :DA issues that are linke) with Ranbaxy# /he 7S

authority has 'lace) four of RanbaxyBs key 'lants in "n)ia un)er an im'ort ban

that coul) last another year or two

• ($"D/A of Ranbaxy is very low aroun) *250 way below in)ustry stan)ar)s an)

Sun Pharma has to increase the ($"D/A

• Sun Pharma has to increase the 'rofitability in emerging markets like Romania

where Ranbaxy is )oing ba)

• /here may be an issue with the &om'etition &ommission of "n)ia as there are

nearly 14 )rugs in which the combine) entity hol)s more than 325 market share

• Ranbaxy has high )ebt on its balance sheet an) Sun Pharma nee)s to come out

with ways to re)uce the )ebt going forwar)# /he )eal is 7SD 3 billion an may

limit the Sun Pharma from entering the s'eciality business for some time

• Iowever0 Sun Pharma will have tough task to shelve high overhea)s in Ranbaxy

an) im'rove 'rofitability in business % something it has )one in case of /aro

• "t will be really challenging to integrate the +222 'lus marketing 'ersonnel of

both the com'anies given that he culture are )ifferent

g< /he regulatory issues that can come u' are


24/25

/here are aroun) 38 )rugs in which the combine) entity becomes a )ominant

'layer# &om'etition &ommission of "n)ia is currently watching whether the

com'any increases the 'rices or cuts 'ro)uction in these categories

/he com'anies have shortliste) -. molecules out of 138 molecules in which their

combine) market share is more than *4 'er cent while in some cases it stan)s

above +2 'er cent#

/he in)ivi)ual market share of the com'anies in these -. molecules is greater

than 4 'ercent#

&&" has sai) that 'ublic consultation has been launche) in or)er to )etermine whether the

combine) entity has any a)verse im'act on com'etition in relevant market in "n)ia#

h /he roa)ma' for integration shoul) be

• Regulatory a''rovals from various bo)ies such as S($"0 &&"0 Stock

(xchanges0 Iigh &ourts of u@arat0 Iaryana an) Pun@ab0 an) the stakehol)ers

of both com'anies

• Streamlining of teams

• Resolving regulatory issues at Ranbaxy 'lants un)er 7S im'ort alert

• Restructuring of 'ro)uct 'ortfolios to align with the interests of Sun Pharma

• $enchmark the staff%'ro)uctivity ratio

References

1. http://www.ranbaxy.com/sun-pharma-to-acquire-ranbaxy-in-a-us4-billion-landmark-

transaction/

2. http://businesstoday.intoday.in/story/ranbaxy-acquisition-good-for-sun-pharma-

shareholders-experts/1/2!!2".html

#. http://www.business-standard.com/article/companies/sun-pharma-draws-up-plan-to-fix-

ailing-ranbaxy-114$111#%1.html

4. http://www.business-standard.com/article/companies/sun-pharma-buys-ranbaxy-from-

&apan-s-daiichi-1144''#'%1.html

http://www.ranbaxy.com/sun-pharma-to-acquire-ranbaxy-in-a-us4-billion-landmark-transaction/http://www.ranbaxy.com/sun-pharma-to-acquire-ranbaxy-in-a-us4-billion-landmark-transaction/http://businesstoday.intoday.in/story/ranbaxy-acquisition-good-for-sun-pharma-shareholders-experts/1/205526.htmlhttp://businesstoday.intoday.in/story/ranbaxy-acquisition-good-for-sun-pharma-shareholders-experts/1/205526.htmlhttp://www.business-standard.com/article/companies/sun-pharma-draws-up-plan-to-fix-ailing-ranbaxy-114091101300_1.htmlhttp://www.business-standard.com/article/companies/sun-pharma-draws-up-plan-to-fix-ailing-ranbaxy-114091101300_1.htmlhttp://www.business-standard.com/article/companies/sun-pharma-buys-ranbaxy-from-japan-s-daiichi-114040700737_1.htmlhttp://www.business-standard.com/article/companies/sun-pharma-buys-ranbaxy-from-japan-s-daiichi-114040700737_1.htmlhttp://www.ranbaxy.com/sun-pharma-to-acquire-ranbaxy-in-a-us4-billion-landmark-transaction/http://www.ranbaxy.com/sun-pharma-to-acquire-ranbaxy-in-a-us4-billion-landmark-transaction/http://businesstoday.intoday.in/story/ranbaxy-acquisition-good-for-sun-pharma-shareholders-experts/1/205526.htmlhttp://businesstoday.intoday.in/story/ranbaxy-acquisition-good-for-sun-pharma-shareholders-experts/1/205526.htmlhttp://www.business-standard.com/article/companies/sun-pharma-draws-up-plan-to-fix-ailing-ranbaxy-114091101300_1.htmlhttp://www.business-standard.com/article/companies/sun-pharma-draws-up-plan-to-fix-ailing-ranbaxy-114091101300_1.htmlhttp://www.business-standard.com/article/companies/sun-pharma-buys-ranbaxy-from-japan-s-daiichi-114040700737_1.htmlhttp://www.business-standard.com/article/companies/sun-pharma-buys-ranbaxy-from-japan-s-daiichi-114040700737_1.html


25/25

!. http://www.li(emint.com/)oney/1*+,$uoy0#()'c3/un-5harmas-6anbaxy-

acquisition-winners-and-losers.html

". http://www.li(emint.com/7ompanies/l87k,9s2qlap;

m&a term paper final

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