"MNCs deal a blow to local cos, lap up both big and small players"

Coca-Cola India, ACC and Gujarat Ambuja, Gokaldas Exports, Anchor...

WHILE Indian firms have been striking bulge bracket deals overseas, multinational firms are slowly but surely picking some gems in the domestic market. Over the last few years, some of the sectoral leaders have been snapped up by MNCs who have taken a short cut to hit the bulls’ eye in one of the fastest growing emerging markets in the world. While Ranbaxy’s sell-off to Japanese drug maker Daiichi Sankyo is the latest to join the list, other companies in sectors like cement, electrical products and apparel have also witnessed sell-offs.

The first big sale happened way back in 1993 when Ramesh Chauhan sold off a slew of soft drink brands to Coca-Cola India. This was followed by a series of small-time sell-offs by Indian business groups to MNCs who were looking to set a foothold in India after the economy opened up.

While there were numerous sell-offs thereafter, market leaders were not part of them in most cases and MNCs continued to snap up top players in smaller niche areas. Over the last three years, a number of blue chips and other category leaders have been bought over by MNCs or private equity funds.

For instance, Swiss cement maker Holcim struck a double deal by acquiring the top two cement makers in the country— ACC and Gujarat Ambuja. Holcim started by acquiring the stake of founder Sekhsaria and Neotia families in Gujarat Ambuja and indirectly got a significant minority stake in ACC. It later upped its stake through a public offer. The sell-off was prompted by two basic issues: right valuation and issues related to family succession.

Today, Holcim controls India’s largest cement manufacturer ACC with close to a 43% stake in the company, besides holding 46% stake in Ambuja Cement (formerly Gujarat Ambuja).

It’s not just strategic acquirers who have managed to acquire sector leaders. Last August, private equity fund Blackstone acquired country’s largest apparel maker and exporter, Gokaldas Exports. The PE player bought the promoters’ 50.1% stake in Gokaldas for $165 million and bought another 20% through an open offer in what was considered to be a overvalued transaction.

“It was in the interest of the company to partner Blackstone, whose financial strength and stakes in different companies across the world would help Gokaldas expand and also ensure an assured large orderflow to the company,” says Gokaldas Exports MD Rajendra Hinduja, whose family still holds 20% in the company and manages the company on a daily basis.

“In textile, the return on the capital employed and management effort undertaken by the company is much less compared to other industries. So it made sense for the promoters to offload stake in Gokaldas and deploy the money in businesses where the returns are much higher,” says a industry source, on why promoters, who had run the company for over 25 years, decided to cede control to Blackstone.

In another buyout last year, Japanese firm Matsushita Electric Industrial bought 80% of privately held electric equipment maker Anchor Electricals. The Mumbai-based Shah family that retains 20% stake pocketed $480 million for giving up majority stake in the firm, which has close to a one-third share in the domestic electrical products market.

"We are open to acquiring more than 50% stake"

What Takashi Shoda, President & CEO, Daiichi Sankyo Company said

Ranbaxy Laboratories will be the Indian counterpart of Daiichi Sankyo. Whatever we do in India will be done through Ranbaxy.

Daiichi Sankyo had keen interest in the Indian pharmaceutical market for a long time. In India, we have only considered Ranbaxy as a prospective partner, for a long time. This is the right to time (for the deal).

The company is open to acquiring more than 50% stake, if the open offer of an additional 20% stake is fully subscribed.

There will be no change in the management. The company will remain listed. Ranbaxy’s name is prestigious and there will be no change in Ranbaxy’s identity.

While both companies will closely cooperate to explore how to fully optimise our growth opportunities, we respect Ranbaxy’s autonomy and it will have an autonomous management.

We have presence in 21 countries but with Ranbaxy as a partner, we will increase our presence to 60 countries.

The combined Daiichi Sankyo and Ranbaxy will now rank at number 15 globally. Daiichi Sankyo alone ranked 22.

Ranbaxy Laboratories CEO and MD Malvinder Singh will continue with his current position and will take the additional role of the chairman of the board (of Ranbaxy upon closure of the deal).

We respect and believe in the management skill of Mr Malvinder Singh. We invite him to be a member of the senior global management of Daiichi Sankyo.

I would also prefer to be on the board of Ranbaxy.

Our mission is to be a global innovator company. The proposed transaction is in line with our goal. It provides the opportunity to complement our strong presence in innovation with a new, strong presence in the fast growing business of non-proprietary pharmaceuticals. Ranbaxy will also allow us to tap the emerging markets.

The complementary combination represents a perfect strategic fit and delivers a considerable opportunity for the future growth of the new Daiichi Sankyo Group.

Our existing ties with Glaxosmithkline Indian arm as a marketing partner for our hypertension drug, Olmesartan Medoxomil in India will continue.

The company is deliberating whether to have separate subsidiaries in India. It is considering leveraging the low cost manufacturing opportunities in India for its global products.

The company will fund the acquisition through debt and cash on hand.

"Daiichi gets a foothold in India"

Japanese major Daiichi Sankyo’s buyout of India’s largest pharma company Ranbaxy Laboratories has paved the way for the $8.2 billion drug discovery company to acquire one of the world’s largest generic product basket that will give it tremendous global reach. The Japanese company will now own India’s largest pharma company and will be among the largest generic companies in the world.

Daiichi Sankyo, Japan’s second largest pharma company, with little presence in India, recently started operations in the country. It recently set up a wholly-owned subsidiary Daiichi Sankyo India with an investment of Rs 25 crore. The subsidiary is headed by V Vijayendran, incidentally an ex-Ranbaxy executive. This wholly-owned subsidiary primarily focuses on cardiology and diabetology segments. It recently signed a marketing alliance with GSK India to launch its hypertension drug in India.

Previous to its merger with Daiichi, Sankyo had a small JV with an Indian partner called Unisankyo. Post merger with Daiichi in 2005, Sankyo Daiichi now holds 39.9% in the JV while the remaining 60.1% stake in this venture is held by a group of local promoters led by Jay Soman. The JV manufactures and markets bulk drugs, probiotics and few pharmaceutical products. The Japanese company has been keenly looking at launching a range of products including patented drugs in India, at a competitive price. For the same, it has been looking at outsourcing its manufacturing to Indian companies. The company can now use the manufacturing facilities of Ranbaxy for both Indian and global markets. To tap the research talent and cost advantage, the company was also looking at setting up a research facility in India.

Ranbaxy will provide the Japanese company immediate entry to Eastern Europe and Africa where the Japanese major has little presence. Daiichi will also have immediate access to thereuptic segments such as anti-infective and anti-inflammatory where Ranbaxy has a strong presence. About 20% of Ranbaxy’s sales come from emerging markets, which Daiichi Sankyo is keen to tap. Ranbaxy Laboratories has subsidiaries in 49 countries and its products are sold in over 150 countries.