The Competition Commission of India (CCI) last week approved the merger of Ranbaxy Laboratories with Sun Pharma on the condition that 7 overlapping products of the two companies should be sold out in six months to avoid a monopoly situation in the domestic market. CCI had ordered an investigation into the proposed merger of Sun Pharma and Ranbaxy soon after acquisition of the controlling stake of Ranbaxy by Dilip Shanghvi, the managing director of Sun Pharma. The CCI action was by citing the possible harm that the deal could cause to the national interest by way of significant market domination after the merger by the combined entity. The CCI order now clearing the deal is an important milestone in the whole transaction. It is expected that the merger of the two companies would complement business interest of each other with limited product overlap, and will offer a comprehensive product basket. As of March 2014, the promoter holding in Sun Pharma and Ranbaxy stood at 63.65 per cent and 63.41 per cent, respectively. With the completion of the merger process, Sun promoters' stake will come down to 54.6%, while Daiichi, the Japanese promoter of Ranbaxy, will hold around 9% in the new entity. This status should give Daiichi the right to nominate one director to merged company and that will give the new company an easy entry to Japan, the market with the highest growth potential and low penetration of generic drugs.
With the acquisition of Ranbaxy by Sun, Daiichi got a grand opportunity to exit the crisis ridden Ranbaxy with a fairly good return on its investments besides the stake in the new company. What will be the name of the new entity is not yet clear but it is unlikely that the management will have a tag of only Sun Pharma considering the huge presence of Ranbaxy products in most parts of the world. Be that as it may, the new corporate entity now becomes the fifth biggest generics company in the world and the largest pharmaceutical company in India. It will have operations in 65 countries, 47 manufacturing facilities across 5 continents providing a significant platform of speciality and generic products marketed globally. However, most of the problems Ranbaxy has been facing before the takeover still remains to be solved. The company has been confronting serious issues with regard to exports to the US, its most important market, since 2009. All its Indian facilities exporting drugs to the US have been barred from doing so by the US FDA for failing to comply with manufacturing norms. Last year, Ranbaxy management also pleaded guilty to felony charges related to drug safety in the US and had to pay $500 million in civil and criminal fines under a settlement with the department of justice. Its balance sheet has been disappointing for some time. Ranbaxy's consolidated net sales for the year ended December 2013 declined to Rs. 10,604 crore from Rs. 12,253 crore in the previous year and EBDITA to Rs. 1,066 crore from Rs. 2,211 crore. The company's net loss amounted to Rs. 1,012 crore in 2013 as against a net profit of Rs. 923 crore in 2012. Considering Dilip Shanghvi’s track record of acquiring poorly performing companies and turning them around, this grand acquisition should also prove to be a success in the long term. Between 1997 and 2012 Sun Pharma made 13 acquisitions starting with the purchase of Caraco Pharmaceuticals.