Research Paper

Ranbaxy Acquisition By Daiichi - Sankyo

Ranbaxy Acquisition Ranbaxy is a well known name in pharmaceutical company in India, with large amount of shares both
in Bombay and National stock exchange has now sold major amount of shares to the Japanese company Daiichi. On 11th
June 2008, Daiichi Sankyo Company Limited, one of the largest pharmaceutical companies in Japan and Ranbaxy
Laboratories Limited , among the top 10 generic companies in the world and India’s largest pharmaceutical company,
announced that a binding Share Purchase and Share Subscription Agreement (the “SPSSA”) was entered into between
Daiichi Sankyo, Ranbaxy and the Singh family, the largest and controlling shareholders of Ranbaxy (the “Sellers”), pursuant
towhich Daiichi Sankyo will acquire the entire shareholding of the Sellers in Ranbaxy and further seek to acquire the
majority of the voting capital of Ranbaxy at a price of Rs737 persharewith the total transaction value expected to be between
US$3.4 to US$4.6 billion (currency exchange rate: US$1=Rs43). In terms of the Indian currency, approximately Rs .20000
crores.

The SPSSA has been approved by the Boards of Directors of both companies. Daiichi
Sankyo is expected to acquire the majority equity stake in Ranbaxy by a combination of;

(i) Purchase of shares held by the Sellers (54.30%-Singh & his family),

(ii) Preferential allotment of equity shares (9.12% to buyer),

(iii)An open offer to the public shareholders for 20% of Ranbaxy’s shares, as per Indian Regulation Act, And

(iv)Daiichi Sankyo’s exercise of a portion or all of the share warrants to be issued on a Preferential bases. All shares will be
acquired /issued at a price of rs.737 per share.

This purchase price represents a premium of 53.5% to Ranbaxy’s average daily closing price on the National Stock Exchange
for the three months ending on June 10, 2008 and 31.4% to such closing price on June 10, 2008.

The deal was financed through a mix of bank debt facilities and existing cash
resources of Daiichi Sankyo. Nomura Securities Co., Ltd., the Japan headquartered investment bank, acted as the exclusive
financial advisor, Jones Day as the legal advisor outside India, P&A Law Offices as the legal advisor in India, Mehta Partners
LLC as the strategic business advisor and Ernst & Young as the accounting and tax advisor to Daiichi Sankyo. Religare
Capital Markets Limited, a wholly owned subsidiary of Religare Enterprises Limited, is the exclusive financial advisor to
Ranbaxy and the Singh family. Vaish Associates are the legal advisors to Ranbaxy and the Singh family. CEO and Managing
Director Atul Sobti resigned from Ranbaxy in late 2010. On June 11, 2008, Daiichi-Sankyo acquired a 34.8% stake in
Ranbaxy, for a value $2.4 billion. In November 2008, Daiichi-Sankyo completed the takeover of the company from the
founding Singh family in a deal worth $4.6 billion by acquiring a 63.92% stake in Ranbaxy. The addition of Ranbaxy
Laboratories extends Daiichi-Sankyo's operations - already comprising businesses in 22 countries. The combined company is
worth about $30 billion.

ABOUT RANBAXY:

Ranbaxy, one of the success stories in India, started out as a distributor of medicine and turned into a multinational
Corporation with getting over 80 percent of its business from outside the country. 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.

Ranbaxy was started by Ranbir Singh and Gurbax Singh in 1937 as a distributor for a Japanese company Shionogi. The name
Ranbaxy is a combination of the names of its first owners Ranbir and Gurbax. Bhai Mohan Singh bought the company in
1952 from his cousins Ranbir and Gurbax. After Bhai Mohan Singh's son Parvinder Singh joined the company in 1967, the
company saw a significant transformation in its business and scale. His sons Malvinder Mohan Singh and Shivinder Mohan
Singh sold the company to the Japanese company Daiichi Sankyo in June 2008.

RANBAXY SUCCESS STORY:

In 1998, Ranbaxy entered the United States, the world's largest pharmaceuticals market and now the biggest market for
Ranbaxy, accounting for 28% of Ranbaxy's sales in 2005.

For the twelve months ending on 31 December 2005, the company's global sales were at US $1,178 million with overseas
markets accounting for 75% of global sales (USA: 28%, Europe: 17%, Brazil, Russia, and China: 29%). For the twelve
months ending on December 31, 2006, the company's global sales were at US $1,300 million.

Most of Ranbaxy's products are manufactured by license from foreign pharmaceutical developers, though a significant
percentage of their products are off-patent drugs that are manufactured and distributed without licensing from the original
manufacturer because the patents on such drugs have expired.

In December 2005, Ranbaxy's shares were hit hard by a patent ruling disallowing production of its own version of Pfizer's
cholesterol-cutting drug Lipitor, which has annual sales of more than $10 billion.

In June 2008, Ranbaxy settled the patent dispute with Pfizer allowing them to sell Atorvastatin Calcium, the generic version
of Lipitor(R) and Atorvastatin Calcium-Amylodipine Besylate, the generic version of Pfizer's Caduet (R) in the US starting
November 30, 2011. The settlement also resolved several other disputes in other countries.
On 23 June 2006, Ranbaxy received from the United States Food & Drug Administration a 180-day exclusivity period to sell
simvastatin (Zocor) in the U.S. as a generic drug at 80 mg strength. Ranbaxy presently competes with the maker of brand-
name Zocor, Merck & Co.; IVAX Corporation (which was acquired by and merged into Teva Pharmaceutical Industries
Ltd.), which has 180-day exclusivity at strengths other than 80 mg; and Dr. Reddy's Laboratories, also from India, whose
authorized generic version (licensed by Merck) is exempt from exclusivity.

On 10 June 2008, Japan's Daiichi Sankyo Co. agreed to take a majority (50.1%) stake in Ranbaxy, with a deal valued at about
$4.6 billion. Ranbaxy's Malvinder Singh will remain CEO after the transaction. Malvinder Singh also said that this was a
strategical deal and not a sell out.

On 16 September 2008, the Food and Drug Administration issued two Warning Letters to Ranbaxy Laboratories Ltd. and an
Import Alert for generic drugs produced by two manufacturing plants in India.

ABOUT DAIICHI-SANKYO:

Daiichi Sankyo Co., Ltd. is a Japan-based major pharmaceutical company, which ranks number 22 in the world in
sales.Daiichi Sankyo was established in 2005 through the merger of Sankyo Co., Ltd. and Daiichi Pharmaceutical Co., Ltd. ,
which were century-old pharmaceutical companies based in Japan.In 2006, Daiichi Sankyo acquired Zepharma, the OTC
drugs unit of Astellas Pharma.On June 10, 2008, Daiichi Sankyo agreed to take a majority (35%) stake in Indian generic drug
maker Ranbaxy, with a deal valued at about $4.6 billion. Ranbaxy's Malvinder Singh will remain CEO after the transaction.In
June 2008, the company expressed intent to acquire U3 Pharma, which would contribute a therapeutic anti-HER3 antibody to
the company's anticancer portfolio.

RANBAXY ACQUISITION:

REASONS FOR THE DEAL:

The main benefit for Daiichi Sankyo from the merger was Ranbaxy’s low-cost manufacturing infrastructure and supply chain
strengths. Ranbaxy gained access to Daiichi Sankyo’s research and development expertise to advance its branded drugs
business. Daiichi Sankyo’s strength in proprietary medicine complemented Ranbaxy’s leadership in the generics segment and
both companies acquired a broader product base, therapeutic focus areas and well distributed risks. Ranbaxy can also
function as a low-cost manufacturing base for Daiichi Sankyo. Ranbaxy, for itself, gains smoother access to and a strong
foothold in the Japanese drug market. The immediate benefit for Ranbaxy is that the deal frees up its debt and imparts more
flexibility into its growth plans. Most importantly, Ranbaxy’s addition is said to elevate Daiichi Sankyo’s position from #22
to #15 by market capitalization in the global pharmaceutical market.
1. A complementary business combination that provides sustainable growth by diversification that spans the full spectrum of
the pharmaceutical business.RLL & D.S. are major player in the world pharmaceuticals industry. Both have potential to cater
the demand and through research to generate the demand for further development of the business.

2. An expanded global reach that enables leading market positions in both mature and emerging markets with proprietary and
non-proprietary products. Ranbaxy has large market in India and neighbour countries, while .D.S. has wide market in
developed countries like: Japan, U.S.,Europe and U.K. So, both can extend their market and provide best quality services &
products.

3. Strong growth potential by effectively managing opportunities across the full pharmaceutical life-cycle. The world
pharmaceutical industry is growing at 11%.so, this acquisition will beneficial to meet the extending opportunities of the
industry. The future industry scenario demanding more quality product which can definitely be cater by this acquisition.

4. Cost competitiveness by optimizing usage of R&D and manufacturing facilities of both companies, especially in India. As
in terms of the labour cost, manufacturing cost, exporting cost lower than the other countries, it reduces the cost per unit and
that is directly beneficial to customers. Cost advantage get in the India ,by that surplus amount utilise into r&d.

THE DEAL THAT WAS :

Singh sold his 34.8% stake for around Rs. 10,000 crore ($2.4 billion) at Rs. 737 ($17) per share. Daiichi Sankyo was to pick
up another 9.4% through a preferential allotment. According to Securities & Exchange Board of India (Sebi) norms, it was to
a make an open offer to the shareholders of Ranbaxy for another 20%. There could also be a preferential issue of warrants to
take the Daiichi Sankyo stake up by another 4.9%. That would come into play if the ordinary shareholders don't respond to
the open offer and Daiichi Sankyo needs another way to raise its stake to 51%.

At the end of the exercise, scheduled to be completed by March 2009, Ranbaxy will become a subsidiary of Daiichi Sankyo.
Despite all the denials from Ranbaxy leadership, an Indian icon will vanish. (Similar circumstances drove Sunil Mittal of
Bharti Airtel to walk out of a deal with MTN of South Africa; he wouldn't compromise the Airtel brand which had become
"the pride of India.")

What will Singh be doing with his $2.4 billion? He says that major investments are needed in Religare and Fortis, the group's
forays into financial services and hospitals. But both are really part of the herd in their sectors while Ranbaxy was number
one.

Ranbaxy, with $1.6 billion in global sales in 2007, had a profit after tax of $190 million, a gain of 67% over the previous
year. It has a footprint in 49 countries and manufacturing facilities in 11. It has 12,000 employees, including 1,200 scientists
and has been pouring money into R&D, though obviously not on the same scale as the Western majors.  Ranbaxy is among
the top 10 global generic companies. Its stated vision has been to be among the top five global generic players and to achieve
global sales of $5 billion by 2012. How much of that survives the Daiichi Sankyo regime remains to be seen.
Indeed, there is a question over whether Singh himself will survive. He said that Ranbaxy is in his genes and there is no
question he will remain CEO and, now, chairman. But will he be able to make the transition from a promoter to a
professional CEO? He may have delivered Ranbaxy to Daiichi Sankyo, but now he has to deliver the goods.

Daiichi Sankyo is the product of a 2005 merger between Sankyo and Daiichi. In the financial year ended March 2008, it had
net sales of $8.2 billion and a profit after tax of $915 million. It has a presence in 21 countries and employs 18,000 people. It
is the second largest pharmaceutical company in Japan. The company can trace its roots back to 1899, though the formal
entity today is relatively new. Daiichi Sankyo makes prescription drugs, diagnostics, radiopharmaceuticals and over-the-
counter drugs.

The combined company will be worth about $30 billion. The acquisition will help Daiichi Sankyo to jump from number 22 in
the global pharmaceutical sector to number 15. "The deal will complement our strong presence in innovation with a new,
strong presence in the fast-growing business of non-proprietary pharmaceuticals," according to Shoda.

The combination has other benefits for the Japanese company. It gets a stake in a major player in generics, an area that is
becoming increasingly important in Japan. According to the 2008 Japanese Pharmaceuticals & Healthcare Report (2 nd
quarter), the country's pharmaceutical market is currently valued at $74.4 billion and is the most mature in the Asia-Pacific
region. By 2012, the market will grow to $82 billion. The country's generics sector is one of the most promising. "In an effort
to control ballooning healthcare costs, the ministry of health plans to raise the volume share of generics within the total
prescription market to at least 30% by 2012," says the report. "The current value of the sector is $5.5 billion, which equates to
7.3% of total medicines sales. Changes to prescribing procedures and the influx of foreign firms with low-cost goods will

GETTING INTO JAPAN:

Ranbaxy will gain easier access to the much-coveted Japanese market by operating from within the Daiichi Sankyo fold, says
Raju. "Ranbaxy could bypass a lot of European and U.S. companies that are finding it difficult to enter the Japanese market,
where safety and testing requirements are a lot higher." He notes that Pfizer has done a smart thing in forming an alliance
with Eisai of Japan to jointly market the former's drug Aricept, which treats Alzheimer's disease. "No other Alzheimer's drug
sells well in Japan," says Raju.

Daiichi Sankyo's proposal is to make the much cheaper generic drugs the default option over branded drugs. The ministry
stamp of approval will eliminate the problems patients have been facing with health insurance claims; some insurers have not
been accepting generic drugs as valid medicines. Indian pharmaceutical companies have been aware of this opportunity.
Some have started their preparations. Last October, the Mumbai-based Lupin Ltd acquired an 80% stake in a Japanese
generic pharmaceuticals company, the $70 million Kyowa Pharmaceutical Industry Co Ltd. Orchid Chemicals &
Pharmaceuticals has set up a wholly-owned subsidiary in Japan called Orchid Pharma Japan.
The Ahmedabad-based Zydus Cadila group initially entered the Japanese generics market with Zydus Pharma in 2006. This
U.S. company's mandate was to market formulation generics and look for alliances with Japanese companies. Last year,
Zydus acquired a 100% stake in the Tokyo-based Nippon Universal Pharmaceutical Ltd. Zydus Cadila had earlier taken over
Alpharma of France. In India, its acquisitions include Recon Healthcare, German Remedies, Banyan Chemicals and Liva
Healthcare.

As much smaller companies than Ranbaxy have gone to Japan, shopping bag in hand, why didn't Singh try to purchase
Daiichi Sankyo instead of selling? Domestic laws make Japanese companies difficult to take over. But there surely could
have been an equivalent in Europe or the US. The Tatas and the Birlas have successfully targeted foreign companies several
times their size. Why did Ranbaxy follow a different prescription?

The answer may be in the fact that that Ranbaxy was on a much weaker wicket. The official version talks of synergies. Says a
joint company statement: "Daiichi Sankyo and Ranbaxy believe this transaction will create significant long-term value for all
stakeholders through:

 A complementary business combination that provides sustainable growth by diversification that spans the full
spectrum of the pharmaceutical business.
 An expanded global reach that enables leading market positions in both mature and emerging markets with
proprietary and non-proprietary products.
 Strong growth potential by effectively managing opportunities across the full pharmaceutical life-cycle.
 Cost competitiveness by optimizing usage of R&D and manufacturing facilities of both companies, especially in
India."

But beyond these positive results from the alliance lie problems that could have faced Ranbaxy had it chosen to continue
alone. First, the company has thrived on selling off-patent drugs in the U.S. But this has become a much more expensive
proposition because of litigation. Second, there is growing competition in generics at home and abroad. Finally, even as the
Indian government has been insisting on stringent quality norms, it is extending its regime of price controls. The industry
contends that it simply cannot make adequate returns on various products. "If the promoters of India's largest drug company
felt it better to exit the business after many years of attempts to make it one of the largest in the world, then there must be
serious issues with our drug policy," Swati Piramal, director of strategic alliances at Nicholas Piramal told the Business
Standard.

IMPACT OF THE ACQUISITION OF RANBAXY:

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.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 an 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.

BENEFIT OF THE DEAL:

Benefit of the Deal a win-win for Ranbaxy and Daiichi. Competitiveness by optimizing usage of R&D and manufacturing
facilities of both companies The combination of the two companies will give Ranbaxy access to Daiichi 's expertise in
research while the Japanese company will benefit from low-cost production on the sub-continent, amid a deepening profits
crisis in Japan’s drugs industry. Daiichi will Gain position of major player in Generics.

OUTCOME OF THE DEAL:

The acquisition will help Daiichi Sankyo to jump from number 22 in the global pharmaceutical sector to number 15. Ranbaxy
will gain easier access to the much-coveted Japanese market by operating from within the Daiichi Sankyo fold, bypassing a
lot of European and U.S. companies that are finding it difficult to enter the Japanese market, where safety and testing
requirements are a lot higher Outcome of the Deal Big threat to the survival of the domestic generic industry May just
dampen the motivation of other Indian aspirants who want to emulate Ranbaxy's success in global Pharma The acquisition
will help Daiichi Sankyo to jump from number 22 in the global pharmaceutical sector to number 15 Ranbaxy will gain easier
access to the much-coveted Japanese market by operating from within the Daiichi Sankyo fold, bypassing a lot of European
and U.S. companies that are finding it difficult to enter the Japanese market, where safety and testing requirements are a lot
higher

RECENT PROGRESS:

Recent progress 13% rise in annual sales, helped by a strong contribution from Ranbaxy Laboratories Ltd, India’s largest
drug maker by revenue, which it bought two years ago. Daiichi’s sales increased by 16% in the US and by 28.2% in Europe.
In India, revenue rose 292.8% to ¥59.9 billion, mainly on Ranbaxy’s sales. Ranbaxy posted a net profit of Rs 963 crore for
the quarter ended 31 March, against a loss of Rs761 crore a year ago. Sales had improved 60% to Rs2,490 crore, as the firm
for the first time sold medicines in excess of $500 million (Rs2,255 crore) in a quarter.

EFFECT ON STOCK MARKET:

Effect on Stock Market June 10, a day before the deal was announced, the Ranbaxy scrip surged 6.52% to Rs 560.75 and the
Sensex fell 177 points. The stock ended almost flat at Rs 560.80 on June 11 June 11 The reason as to why the Ranbaxy stock
had been moving against the general market direction since it became public when the company announced about the sale of
a majority stake in it to the Japanese firm Daiichi Sankyo .

OTHER STOCK SIZZLE:

Other Stock Sizzle Zenotech surged 20 per cent Religare (8.53 per cent) Fortis Financial Services (10 per cent) Fortis
Healthcare (18.87 per cent) Krebs Biochemicals (4.92 per cent) Jupiter Biochemicals (13 per cent) Orchid increased by 13.56
per cent. Singh contends that this is just what the doctor ordered. "[This] puts us on a new and much stronger platform to
harness our capabilities in drug development, manufacturing and global reach," he said. "Together with our pool of scientific,
technical and managerial resources and talent, we will enter a new orbit to chart a higher trajectory of sustainable growth ...
in the developed and emerging markets, organically and inorganically. This is a significant milestone in our mission of
becoming a research-based international pharmaceutical company."

Daiichi Sankyo president and CEO Takashi Shoda said the two companies are a good fit: "The proposed transaction is in line
with our goal to be a global pharmaceutical innovator and provides the opportunity to complement our strong presence in
innovation with a new, strong presence in the fast-growing business of non-proprietary pharmaceuticals." He added: "While
both companies will closely cooperate to explore how to fully optimize our growth opportunities, we will respect Ranbaxy's
autonomy as a standalone company as well." Not only will Singh stay with the company, Shoda said, he will also be
chairman of its board of directors.

While Daiichi Sankyo will find it easier to enter the Indian market with Ranbaxy, its bigger goal would be in securing a
strong presence in the global market for generics. "Ranbaxy has a good foothold in the worldwide generics market, which is
lucrative and growing," he says.

Daiichi Sankyo is the product of a 2005 merger between Sankyo and Daiichi. In the financial year ended March 2008, it had
net sales of $8.2 billion and a profit after tax of $915 million. It has a presence in 21 countries and employs 18,000 people. It
is the second largest pharmaceutical company in Japan. The company can trace its roots back to 1899, though the formal
entity today is relatively new. Daiichi Sankyo makes prescription drugs, diagnostics, radiopharmaceuticals and over-the-
counter drugs.

The combined company will be worth about $30 billion. The acquisition will help Daiichi Sankyo to jump from number 22 in
the global pharmaceutical sector to number 15. "The deal will complement our strong presence in innovation with a new,
strong presence in the fast-growing business of non-proprietary pharmaceuticals," according to Shoda.

The combination has other benefits for the Japanese company. It gets a stake in a major player in generics, an area that is
becoming increasingly important in Japan. According to the 2008 Japanese Pharmaceuticals & Healthcare Report (2 nd
quarter), the country's pharmaceutical market is currently valued at $74.4 billion and is the most mature in the Asia-Pacific
region. By 2012, the market will grow to $82 billion. The country's generics sector is one of the most promising. "In an effort
to control ballooning healthcare costs, the ministry of health plans to raise the volume share of generics within the total
prescription market to at least 30% by 2012," says the report. "The current value of the sector is $5.5 billion, which equates to
7.3% of total medicines sales. Changes to prescribing procedures and the influx of foreign firms with low-cost goods will

CONCLUSION:

Ranbaxy laboratories ltd. (which is the no.1 pharmaceutical company in India) acquired by Daiichi SankyoCompany Ltd.(a
Japan’s third largest pharmaceutical company and also in top 20 pharma company in the world.It was the biggest acquisition
of a domestic pharmaceuticals company by foreign company. This acquisition provided benefit to both companies. D&S
could enter into the Asian market which is world’s largest pharmaceuticals market.
Ranbaxy got the strategic partner which helped to explore the foreign market and its innovator facility to accelerate the
growth of the company.We hope this acquisition will prove more beneficial not only D & S and Ranbaxy but also to the
mankind in terms of the new innovative drugs and medicines for the deadly diseases.