With the CCI approving the Sun Pharma-Ranbaxy deal with riders, Surajit Pal, pharma analyst at Prabhudas Lilladher says an arbitrage opportunity has been created and for some reason investors are pessimistic on the deal, this gap is being filled.
Competition Commission of India (CCI) has asked both companies to sell seven brands, which could have had an appreciable adverse effect on competition in their relevant markets post the merger.
The Competition regulator has given a 6 month window for the divestment process, and only after the divestment is complete will the deal get the final nod. But Pal believes the divestment process should be done by March.
Post the divestment, he does not see the deal being blocked by Indian regulators.
Below is the verbatim transcript of Surajit Pal's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Is there any fresh positives or is it only a relief rally that you are seeing in Sun Pharma and Ranbaxy after the CCI order?
A: The arbitrage opportunity which has been created, I don’t know why and why investors were so pessimistic, that gap is filling up. However, the arbitrage opportunity whatever the gap has been created that when somebody got the Sun Pharma shares instead of Ranbaxy shares, I think that gap was too much. So, I think that is actually nearing up.
Sonia: The CCI has said that six months is a firm timeline for divestment. In your assessment do you think this entire divestment process can take longer than that or do you think they will be able to manage in six months?
A: I think six months expectation is too much. I think by March it will be done. It is no big deal, Rs 140 crore in domestic market of those seven brands can easily be divested. My guess is that it will be given to the smaller guys because on competitive perspective they will not like any stronger guys to buy this. So, they might be looking for smaller guys so that they would not challenge their product. It could be the case that post merger they are reentering that sector.
Latha: Does this approval from the CCI and the eventual divestment make it easy or make it inevitable that the Federal Trade Commission (FTC) and the High Court approvals also is now only a matter of cause?
A: As far as Indian regulatory is concerned I don’t think there will be anything blocking the merger further. So, it will be easy. As far as US is concerned, US will see from their legal point of view. So, in that case that will be a different benchmark.
Latha: What is your price target for the merged Sun Pharma?
A: Sun Pharma’s current price has already been crossed. I think Sun Pharma management clarified further because last time when they gave around USD 250 million of synergy benefit over two to three years period of time, they have now much better knowledge about the company. So, in that case we need to understand better, how this synergy will pan out. However, overall you can expect around 10-12 percent from hereon.
Sonia: So one can still buy the stock right?
A: Yes.
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