ranbaxy final deal

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HISTORY





Ranbaxy Laboratories Limited

� Ranbaxy was founded in 1937 and derived its

name from that of its founders Ranjit Singh

and Gurbax Singh.

� It started out as the Indian distributor of

vitamins and anti tuberculosis drugs for a

Japanese pharmaceutical company

� Ranbaxy has a marketing presence in 49

countries and manufacturing facilities in 11

countries and its brand presence in 150

countries.



� Global sales $1.6 billion in 2007

� Profit after tax of $190 million

� Gain of 67% over the previous year

� Focus on Generic business.

� 12000 employees, 1400 R&D staff. Ranbaxy has one

of the largest R&D infrastructures in the country withmore than 1,000 scientists.

� Ranbaxy spends over US$ 100mn annually on R&D,

of which US$ 25mn is spent on innovation research.

� Ranbaxy is a promoter owned company with

promoters holding about 34.81 % shares. The

balance of 65.19 % is held by the public (including

the FIIs, FDIs, Mutual Funds, Insurance companies,

companies, individuals, and GDRs)



� Ranbaxy is listed on the National Stock Exchange and

the Bombay Stock Exchange. It has a paid up capital

of Rs. 1.866 billion

� Ranbaxy is among the top 10 global generic

companies

� Vision has been to be among the top five global

generic players and to achieve global sales of $5billion by 2012





Daiichi Sankyo Company, Limited

� Formed in 2005 by a merger of Daiichi

Pharmaceuticals Co. Ltd and Sankyo Co. Ltd, the two

largest Japanese pharma giants.

� The company gains from the 106 year old history of Sankyo Co. Ltd. (1899) and the 90 year old heritage

of Daiichi Pharmaceutical Co. Ltd (1915).

� The second largest pharmaceutical company in Japan

� Daiichi Sankyo is a pharma innovation basedcompany with a strong R&D pipeline.

� Daiichi Sankyo is a professionally managed companywith no promoters or controlling shareholders.



� 79.40 % of Daiichi Sankyo is held by the FIIs/MutualFunds/Financial Institutions/Banks and 20.60 % by

the public (including the government, companies,individuals & treasury stock).

� Daiichi Sankyo is listed on the Tokyo Stock Exchangeand has a paid up capital of JPY 50 billion and amarket capitalization of JPY 2139 billion

approximately� Daiichi Sankyo had revenues of JPY 907 billion and

net profits of more than JPY 97 billion for the year

ended 31st March, 2008.

� Company has a presence in 21 countries andemploys 18,000 people



W

hy Ranbaxy Daiichi deal?



Benefit to DIS-Growth

� DIS grew at 4.7% in 2007 to $ 7.12 billion and

Ranbaxy grew at over10% to $1.6 billion

�

Innovator and the generic companies� Improve its growth rate substantially

� Jointly, the two companies will rank 15th in

the global pharmaceutical market



Reach

� Able to extend its reach to 56 countries(especially emerging markets) from 21countries

� Gets the frontend infrastructure

� A significant position in India, Eastern Europeand Asia and one of the largest presence in

Africa� In countries, like Mexico, Russia, DIS has so far

not operated



Cost Savings in Manufacturing, Sales

and R&D

� Low-cost manufacturing infrastructure and supply chain strengths

of Ranbaxy

� Efficiency in its operations by sourcing APIs and finished dosage

products

� Ofloxacin-

± sales in 2007 were ¥ 108.7 billion

± average cost of goods sold for DIS was about 30%

± After deal can save ¥ 6.52 billion

� Cost savings for conducting clinical trials and collaborating on

research and sales across the world

� The cost competitive R&D facilities of Ranbaxy

� Use competencies of Ranbaxy scientists to hasten new

product development



Benefits to Ranbaxy

� Immediate benefit for Ranbaxy was cash infusionof Rs 34 billion

� Free up its debt

� Stronger player with innovation, research anddevelopment and a far larger pipeline to leverageglobally

� Gains access to DIS' research and development

expertise to advance its branded drugs business� Opportunities to strengthen its API business by

working with DIS as a supply partner.



� Smoother access to and a strong foothold in theJapanese drug market

� Bypass a lot of European and U.S. companies

� A complementary business combination that providessustainable growth by diversification that spans the fullspectrum of the pharmaceutical business.

� An expanded global reach that enables leading marketpositions in both mature and emerging markets with

proprietary and non-proprietary products.� Strong growth potential by effectively managing

opportunities across the full pharmaceutical life-cycle



� The deal will strengthen Ranbaxys globalpresence as also enhance product offeringranging from new chemical discoveries to cheapgeneric drugs.

� While Daiichi Sankyo will leverage this network,this transaction will also add significant businessto Ranbaxy.

� Enable them to do so much more, especially inthe Japanese generic market, where they want tobe the No.1 player

� focus on healthcare and financial services



Details of the deal� On the 11th of June, 2008 Ranbaxy Laboratories

announced that a binding Share Purchase and Share

Subscription Agreement(SPSSA) was entered

between Daiichi Sankyo and Ranbaxy and the Singh

family (the promoters of Ranbaxy)

� Malvinder Mohan Singh sell his 34.8% stake for

around Rs. 10,000 crore ($2.4 billion) at Rs. 737 ($17)per share



� Daiichi Sankyo will pick up another 9.4% through a

preferential allotment

� An open offer to the shareholders of Ranbaxy for

another 20% ,as per SEBI

� Then preferential issue of warrants to take the

Daiichi Sankyo stake up by another 4.9%. That will

come into play if the ordinary shareholders don't

respond to the open offer and Daiichi Sankyo needs

another way to raise its stake to 51%.



� Each warrant representing 1 share that could be

converted at Rs 737 per share at any time between 6

to 18 months from the date of allotment

� Negotiated price of Rs 737 represented a premium of

31.4% over the market price of Ranbaxy on the day

of the announcement



� When the deal closed in November 2008, DIS had

acquired 63.92% of the equity share capital of

Ranbaxy as shown below:

Acquisition Date Particulars Number of Shares

October 15 Acquisition of Shares

under Open Offer

92,519,126

October 20 Allotment of Shares on

Preferential basis

46,258,063

October 20 Acquisition of Shares

from the Singh family

81,913,234

November 7 Acquisition of Shares

from the Singh family

48,020,900

Total 268,711,323



� Post this offer, the deal would value Ranbaxy

at about $8.5 billion (over Rs 36,000 crore).

�

Post acquisition, Ranbaxy would become adebt-free firm with a cash surplus of around

Rs 2,800 crore



Valuation� In the absence of any forecasted cash flow, comparables

method is used for evaluation.� Different multiples gave completely different results.

� Based on EV/EBIDTA, Ranbaxy at 17.34 - was already at the

higher end of generic companies. Merck Co had higher

EV/EBIDTA as compared to Ranbaxy by 18%.� Ranbaxy also had the highest EV/Total Assets multiple (1.94)

amongst the generic companies. Glaxos multiple was 23%

higher.

� The EV/Sales multiple was more reassuring, for Mr. Kurosawa.

As compared to TEVA and Mylan, Ranbaxy appeared

substantially under priced. Therefore price of Rs 737 paid by

DIS appeared justified.



Table of Comparison for valuation



Post Deal Scenario



� Post closing Ranbaxy would continued to

remain an independent identity

� All the strategic tie-ups of the company

including the deals with Zenotech, Orchid and

Merck would remain unaffected.



� Once the deal is completed, the Singh

family will cease to have any stake in the

company

� Though Mr Malvinder Singh will continue to

lead the pharmaceutical major as its Chief Executive Officer and Managing Director.

� There would be 10 members on the board,of which Ranbaxy will appoint four

members including Mr Malvinder Singh.



� Post acquisition, Ranbaxy would become a

debt-free firm.

� The two firms said they plan to keep Ranbaxy

a listed entity in India even as it retained the

identity and brand



� One week after the DIS announcement,

Ranbaxy announced that it had entered into

an agreement with Pfizer Inc. to settle most of

the patent litigation worldwide involving

Pfizers cholesterol fighting drug Lipitor

(generic name Atorvastatin).

� Lipitor is the world's largest selling drug with

worldwide sales in 2007 of $ 12.7 billion.



� AstraZeneca on its $ 7 billion heartburn drug

Nexium,

� GSK on its $ 985 million migraine medicine

I

mitrex and its anti-herpes drugV

altrex withsales of $ 1.3 billion



� Ranbaxy will gain easier access to the much-

coveted Japanese market by operating from

within the Daiichi Sankyo fold

� Ranbaxy could bypass a lot of European and

U.S. companies that are finding it difficult to

enter the Japanese market, where safety and

testing requirements are a lot higher."



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ranbaxy final deal