AFTER three years of swallowing some of the biggest and brightest companies and brands across the world, it was role reversal with a vengeance. A marauding corporate India watched in stunned disbelief that the promoters of Ranbaxy were actually selling out. It has virtually come as a shocker, more so at a time when Indian companies were getting used to the idea of being among the top dogs in the global corporate sweepstakes. In the largest sellout in the history of India Inc, there are some hard lessons for our promoters and CEOs — competing in a fastglobalising world, the hunter can very often become the hunted.
Malvinder Singh, the CEO of India’s largest drug maker Ranbaxy Laboratories, announced at a press conference that his family was selling its entire 34.8% stake in the company to a hitherto little-known company in India — Japan’s Daiichi Sankyo for Rs 10,000 crore ($2.4 billion) — at Rs 737 per share, a 31.4% premium over the company’s closing share price on the same day.
This transaction pegs Ranbaxy’s valuation at $8.5 billion. In all, the Japanese company will acquire 51-62% for $3.4 billion to $4.6 billion. Apart from buying the complete holding of the Singh family, Daiichi Sankyo will pick up another 9.4% in Ranbaxy through a preferential allotment as well and make an open offer for acquiring an additional 20% from other shareholders. It also has the option of acquiring another 4.9% through a preferential issue of share warrants if its holding is less than 51% after the public offer.
ET had got a whiff of this deal three months back and we even sent a questionnaire to Malvinder Singh. At that time, he vehemently denied the possibility of exiting from the company. We finally broke the story a day in advance and reported that the Singh family’s stake was being sold at a 30% premium to a Japanese company. We also first revealed more details about the deal on economictimes.com a couple of hours before the announcement on Wednesday morning.
Though the speculation about Ranbaxy owners selling off their stake goes back to the days of the late Parvinder Singh, the fact that his two sons — Malvinder and Shivinder, still in their thirties — had gone ahead and actually done it caught India Inc by complete surprise. Mahindra & Mahindra’s vice-chairman Anand Mahindra sums up the sentiment of many in corporate India: “It’s a landmark deal for the pharma industry. But I can’t help feeling a twinge of regret about an Indian multinational becoming a Japanese subsidiary.”
It was an emotional decision for Singh too, who in addition to continuing as the CEO of Ranbaxy, will next year become its chairman. “It was an emotional decision for the family, but after weighing several permutations and combinations, we felt that the deal with Daiichi Sankyo was the best for the shareholders and employees. What the family would get out of this was least of my concerns,” he said. But why did the family have to sell out? “The family had to completely exit Ranbaxy to allow Daiichi Sankyo 50.1% stake without which they would not have come on board,” said Mr Singh. He added, with current regulations preventing Indians from holding shares in foreign companies, a merger by way of a share swap was not possible. What’s in it for Ranbaxy?
SO, HOW does the change in ownership benefit Ranbaxy? For one, it will mean infusion of an additional $1 billion into the company, which will enable it to retire its debt of $500 million and become a debt-free company. The surplus cash can be used for Ranbaxy’s expansion and acquisition strategy. “We want to transform the company to the next level. Globally, an alliance between big pharma companies and generic companies is the way forward. Yes, we will become a subsidiary, but we will be a part of the $30-billion global group,” said Mr Singh.
The Ranbaxy-Daiichi combine will be the fifteenth largest drug maker in the world, with a footprint in major global markets. In addition to an expanded global reach, the combined entity will have a complementary product portfolio and a strong growth potential by effectively managing opportunities across the full pharmaceutical life-cycle; and cost competitiveness by optimising usage of R&D and manufacturing facilities of both companies, especially in India.
The acquisition is expected to be completed by the end of March 2009. On completion of the transaction, Ranbaxy is expected to become a subsidiary of Daiichi Sankyo. The deal will be financed through a mix of bank-debt facilities and existing cash resources of Daiichi Sankyo. It is anticipated that the transaction will be accretive to Daiichi Sankyo’s EPS.
Nomura Securities, the Japan-headquartered investment bank, acted as the exclusive financial advisor, and Jones Day as the legal advisor outside India. Religare Capital Markets, a wholly-owned subsidiary of Religare Enterprises, was the exclusive financial advisor to Ranbaxy and the Singh family. Addressing the press conference, Daiichi Sankyo president and CEO Takashi Shoda said: “The proposed transaction is in line with our goal to be a global pharma innovator and provides an opportunity to compliment our strong presence in innovation with a new, strong presence in the fast-growing business of non-proprietary pharmaceuticals. With this acquisition, we will be present in 60 countries compared to 21 earlier.” Few will miss the irony of Mr Singh now being a professional CEO. Wearing his shareholder’s hat, he has facilitated the exit of the company’s two previous CEOs — DS Brar and Brian Tempest. The shoe, who knows, could now on the other foot. But for a man whose family has just pocketed Rs 10,000 crore, job security will not be a matter of concern. A more thorny issue relates to his legacy. Only 36, Mr Singh, will be confronted with the same question that was repeatedly posed to him today: Was this the right time to sell out? That, however, is a Rs 10,000-cr question.
