Daiichi buys all 35% promoter stake in Ranbaxy at Rs 737/sh

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Daiichi buys all 35% promoter stake in Ranbaxy at Rs 737/sh

Daiichi Sankyo will buy out the entire promoter stake of 35% in Ranbaxy Labs at Rs 737/sh, which will also be priced at Rs 737 per share, reports CNBC-TV18. Daiichi's stake buy in Ranbaxy will trigger an open offer. Ranbaxy will make a preferential issue to Daiichi. Daiichi is eyeing a 51% stake in Ranbaxy.

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Daiichi Sankyo will buy out the entire promoter stake of 35% in Ranbaxy Laboratories at Rs 737 per share, reports CNBC-TV18. Daiichi's offer for Ranbaxy amounts to USD 2.7-3.7 billion approximately.

Daiichi's stake buy in Ranbaxy will trigger an open offer, which will also be priced at Rs 737 per share. Daiichi is eyeing a 51% stake in Ranbaxy.

Consecutively, Daiichi will make an open offer for Zenotech . I-Sec and Nomura were the advisors in this deal.

The deal values Ranbaxy at USD 8.5 billion on a diluted basis. Ranbaxy plans to make a USD 1 billion preferential equity allotment of 9.5% at Rs 737 per share. The allotment of convertible warrants would be up to a maximum of 4.9%.

The existing management will still continue under CEO and MD, Malvinder Singh. Singh also become a member of the senior global management of Daiichi. Ranbaxy will become debt free after the deal and get USD 1 billion in cash. "About USD 440 million of Foreign Currency Convertible Bonds, or FCCBs, will be converted into equity at around Rs 550 per share. The FCCB conversion, new capital infusion would be used to clear the debt, said MD and CEO, Malvinder Singh.

Ranbaxy will pursue inorganic growth opportunitites more agressively.

The Daiichi-Ranbaxy deal is valued at 4.3 times sales and 21 times EBITDA on historical earnings. The stake buy is expected to be completed by March 2009.

Daiichi will fund the stake buy via internal accruals and debt, said Ranbaxy management.

Ranbaxy has a market cap of around USD 5 billion and this amount represents 70% premium over its current market cap. 

Ranbaxy management said this deal will help the company emerge as a global research firm. Ranbaxy is expected to become a subsidiary of Daiichi. 

This is the first generics-proprietary partnership in global pharma.

According to CNBC-TV18's pharma analyst Vikas Dandekar , Daiichi has been looking at India from an Active Pharmaceutical Ingredients (API) perspective more than a brand presence. A couple of years ago, GVK Biosciences had sold some stake to Daiichi and that was the beginning of Daiichi in India.

Takeda Pharmaceuticals has been a more conservative Japanese company but Daiichi seems to be very interested in India. It's very unclear whether they really have genuinely direct interest in generic business. Daiichi's buying of Ranbaxy stake probably means they have a bigger play in mind because Japanese generic market is opening up very fast. So that is also one reason why they want to pick up Ranbaxy stake.

Daiichi has been associated with innovation; it has introduced into the market big products like Olmesartan, which was recently challenged by Mylen through Matrix; there was also a big anti-cancer drug called Avista. These products have been the backbone for Daiichi's growth and now they are looking at a generic presence.

From a peer angle, Takeda has also wanted to have some kind of a presence in India; Eisai is already present in India. So Daiichi will be the next and Ranbaxy will be the best vehicle they can get.