Ranbaxy Sellout - The Daiichi Acquisition

The Early Days of Ranbaxy

The company Ranbaxy first came to become headlines when it launched the product 'Calmpose' in 1969 which was India's answer to Roche's 'Valium'. Thus started the journey of an Indian pharmaceutical Company into generic drugs. When the international market was headed by biggies like Pfizer, Novartis and GlaxoSmithKline, Ranbaxy's entry in that arena led to many buyers turning to less expensive production houses in India.

The name 'Ranbaxy'
Initially, Mr Ranjit Singh and Dr Gurbux Singh, who were distributors for A. Shionogi, a Japanese pharmaceutical company manufacturing vitamins and anti-TB drugs, started this Company in the early sixties. The name Ranbaxy is a fusion of these original promoters. Then Bhai Mohan Singh took over Ranbaxy. Bhai Mohan Singh was the recipient of the Padma Vibhusan award in 2005. He passed away on March 28, 2006.

Bhai Mohan Singh later collaborated with Italian pharma company Lapetit Spa (Milan), and subsequently bought out its business. Ranbaxy Laboratories Ltd went public in 1973 and the sleeping pill Calmpose catapulted the company to the big league.

Later, Dr. Parvinder Singh, elder son of Bhai Mohan Singh, became the Managing Director in 1982. His brothers Mr Manjit Singh and Mr Analjit Singh also joined in but later on moved out to other businesses. In 1989, Bhai Mohan Singh decided a three-way split of his assets. Dr. Parvinder Singh was given control of Ranbaxy, Mr Manjit Singh was made in charge of Montari Industries and Mr Anajit Singh was handed over Max India. However some differences arose between Bhai Mohan Singh and Dr, Parvinder over expansion and strategy planning for Ranbaxy. This led to an ousting of Bhai Mohan Singh from the Company in 1999, thus souring relationship between father and son. Dr. Parvinder Singh died of cancer on July 3, 1999. He was the recipient of the 'Businessman of the year' in 1998. Bhai Mohan Singh speaks of Dr. Parvinder Singh

Both father and son had a sharp sense for sniffing out a business that had the potential to give their company another thrust and they took full advantage of the opportunities presented. Neither spared any efforts to get the Company where they wanted it, and used well their political connections, whenever the need arose.

In the begining of the year 2006, Mr Malvinder Mohan Singh, son on Dr.Parviner Singh, took control of the company by becoming Managing Director and CEO, younger brother Mr. Shivinder Mohan Singh, was inducted to the company's board.

The Acquisition effects on Ranbaxy

There has been speculations that after the acquisition of Ranbaxy, many other companies may follow suit. This deal makes Japanese firm Daiichi the 15th biggest drugmaker in the world. Malvinder Singh will continue as CEO and MD and the company will retain its name. The Singh family would net in about Rs 10,000 crore by selling their stake. Malvinder Singh would also assume the position of chairman of the board upon the deal's closure that is expected by March 2009. The Japanese firm would acquire the entire 34.82 per cent stake from its current promoters Malvinder Singh and family. Also Daiichi would make an open offer for an additional 20 per cent stake in Ranbaxy at a price of Rs 737 per share which represents a premium of over 50 per cent on the average price over the last three months.

Besides the promoters' 34.8 per cent stake, Daiichi would also get about 9 per cent through issue of preferential allotment of shares and some warrants, which could be later converted into another 4.5 per cent holding. These, along with a minimum 8 per cent that the new promoters wish to acquire through the open offer, would take Daiichi's holding to above 50 per cent. Post acquisition, Ranbaxy would become a debt-free firm with a cash surplus of around Rs 2,800 crore (Rs 28 billion). The two firms said they plan to keep Ranbaxy a listed entity in India.

Impact of Ranbaxy on Indian Pharmaceutical sector
To some industry observers, promoters of other Indian pharma companies should take a cue from Ranbaxy’s move. Ranjit Kapadia, Head of Research (Pharma), Prabhudas Liladhar said: “The valuation is about 20 times of Ranbaxy’s EBIDTA and about 4 times its total sales. Its a great deal. Other Indian promoters should realise that at the right place and at the right time, they should divest their stake instead of clinging on for emotional attachment.”

Even as Indian companies have been on a active acquisition mode globally, there has been also been off and on rumours of global companies planning to acquire Indian majors, such as Cipla, Aurobindo and Shasun Chemicals. Recently, the Burman family exited the pharma business by selling its entire 65% stake to German company Fesenius Kabi.

* Source - The Economic Times, Rediff News