Sun Pharma-Ranbaxy begin integration after completing merger formalities

Sun Pharmaceutical Industries Ltd on Wednesday said it has started the integration process to complete its buyout of Ranbaxy Laboratories Ltd thereby creating India's largest pharma company by domestic sales and strengthening its position as the world's fifth-largest generic drugmaker.

Currently, Sun Pharma shares the fifth slot of top global generic drugmakers with South Africa's Aspen.

This follows all regulatory approvals including the pending nod from Competition Commission of India (CCI) and RBI. Although CCI had given its green signal to the deal in December itself, it had asked the two firms to divest some products to assuage competition concerns. Last week it gave its nod to the proposed sale of the identified products and brands to Emcure Pharmaceuticals Ltd.

The formal merger of the two firms would take some more time. April 7 has been fixed as the record date to identify the Ranbaxy shareholders who will be entitled to get shares of Sun Pharma as part of the merger through a share swap.

Following the closure of this transaction, Ranbaxy will be delisted from the Indian bourses with its shareholders receiving 0.8 shares of Sun Pharma for each share of Ranbaxy.

Post-merger, Ranbaxy promoter Daiichi Sankyo would become the second-largest shareholder in Sun Pharma with around 9 per cent stake and Shanghvi family will hold 54.7 per cent.

When the deal was announced last April, based on the share price then, the equity value of the buyout was pegged at around $3.2 billion. The enterprise value was $4 billion after adding the debt on the books of Ranbaxy which was to be added to Sun Pharma.

However, over the last one year the share price of both firms have shot up. Based on the agreed share swap ratio and share price today, the equity value of the deal stands at a little over Rs 35,800 crore ($5.7 billion).

An email query to the firm to get the current debt on the books and change in equity value of the deal did not elicit a response.

Meanwhile, the companies said they are yet to freeze the leadership team of the combined business as they begin the integration process.

Sun Pharma has formalised an operational blueprint for generating $250 million in synergy benefits over a three-year period.

On a pro forma basis for 12 months ended December 31, 2014, Sun Pharma and Ranbaxy together generated gross revenues of Rs 27,800 crore. Half of this is came from the US market against 60 per cent for Sun Pharma in the same period, which means it diversifies its revenue mix geographically with a significant chunk now coming from other emerging markets.

In India, as a combined entity Sun Pharma would overtake Abbott to become the top seller of medicines locally. It would have around 9.1 per cent market share in the fragmented domestic market and would draw a significant part of its revenues form neuropsychiatry (17 per cent), cardiology (16 per cent), anti-infective (14 per cent) and gastroenterology (11 per cent) segments.

The combined entity’s manufacturing footprint covers five continents with products sold in over 150 nations.

Sun Pharma will now offer a range of specialty and generic products encompassing chronic and acute prescription drugs as well as a ready foray into the global consumer healthcare market.

Sun Pharma said the deal would significantly expand its R&D capabilities and global presence, especially across emerging markets; enhance product portfolio and market depth in India, US as well as other markets; improve strategic flexibility and ability to pursue partnerships and strengthen M&A bandwidth.

It has identified three key priority levers to drive growth: achieving full compliance in manufacturing in line with regulatory expectations; increase R&D productivity to introduce new products and pursue strong business growth across the US, India and other markets.

Sun Pharma scrip rose 1.29 per cent to close at Rs 1,053.3 a share while Ranbaxy shares last changed hands at Rs 832.9 each, up 1.63 per cent on the BSE in a flat Mumbai market on Wednesday.

(Edited by Joby Puthuparampil Johnson)

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