Introduction

Mergers and Acquisitions (M&A) have always been a buzz word for any industry to grow. In
2006, the domestic pharma companies had executed more than 40 deals with 32 cross-border
transactions worth about $2,000 million. This included big ticket deals like Dr Reddy
Laboratories' acquisition of Betapharm of Germany for Euro 480 million (Rs 2,550 crore) and
Ranbaxy's Terapia buy in Romania for $324 million (over Rs 1,250 crore), according to industry
reports. Although the year 2007-08 has not seen much M&As happening on the Indian pharma
front, experts say that the game is not yet over. The Indian pharma industry witnessed only 25
M&As, with 15 cross border transactions with an estimated value of about $600-700 million in
the Indian pharma sector.

However, inspite of some slow down in M&As in the pharma segment in previous years, the fact
remains that the pharma industry is an M&A favourite. M&As prove beneficial for pharma
companies as a growth strategy. It is more economical to buy out or merge with a premium than
to invest in a start up which involves an element of uncertainty. There is also the benefit of scale
of operations that can be achieved through M&A. Building new businesses in new segments or
geographies requires significant initial investments which might lead to a drag on the company's
profits until the business reaches critical sizear. M&A transactions also help achieve critical size
in a shorter time frame, thus leading to faster return to shareholders. Larger companies are also
likely to be better equipped to handle adverse impacts of regulations in an industry.

Besides, M&As also offer the biggest benefit of "time to market" factor. An M&A transaction
helps pharma companies to get onto a launch pad for growth in strategically important and high
growth markets. It also helps companies save significant time that might be needed to build
green field businesses of similar scale.

The present study discusses the implications of the merger between Ranbaxy and Daiichi
Sankyo, from an intellectual property as well as a market point of view. This analysis is
particularly important at this point because of a variety of reasons including the growing
preference for generics, increasing dominance of emerging markets such as India, fast

1
approaching patent expiry etc. Also, given the fact that this involves between 2 players who are
among the largest among their respective markets, this deal is of great significance.

Background

Daiichi Sankyo Co. Ltd. signed an agreement to acquire 34.8% of Ranbaxy Laboratories Ltd.
from its promoters. Daiichi Sankyo expects to increase its stake in Ranbaxy through various
means such as preferential allotment, public offer and preferential issue of warrants to acquire a
majority in Ranbaxy, i.e. at least 50.1%. After the acquisition, Ranbaxy will operate as Daiichi
development expertise to advance its branded drugs business. Daiichi Sankyo’s strength in
proprietary medicine complements Ranbaxy’s leadership in the generics segment and both
companies acquire a broader product base, therapeutic focus areas and well distributed
risks.Sankyo’s subsidiary but will be managed independently in India.

The main benefit for Daiichi Sankyo from the merger is Ranbaxy’s low-cost manufacturing
infrastructure and supply chain strengths. Ranbaxy gains access to Daiichi Sankyo’s research and
development expertise to advance its branded drugs business. Daiichi Sankyo’s strength in
proprietary medicine complements Ranbaxy’s leadership in the generics segment and both
companies acquire 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.

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 Objectives

The present study discusses the implications of the merger between Ranbaxy and Daiichi
Sankyo, from an intellectual property as well as a market point of view.

1. Gain an in-depth knowledge about the concept of Merger & Aqusition.

2. Critically examine the rationale behind the Merger of Ranbaxy & Daiichi Sankyo Co.Ltd.
3. Understand the advantages and disadvantages of this Merger.

Scope

Since the scope of merger and aquisition is very vast, it is very difficult to study every aspect of
the subject. Keeping in mind the availability of resources and time factor, only Ranbaxy and
Daiichi-Sankyo Co. Ltd merger was taken into account for the research work.
The study was totally confined within the Rnabaxy-Daiichi Sankyo merger to critically examine
the whole deal. The following are the scopes of the study:
The study was based on mainly secondary data
Only the merger of Ranbaxy and Daiichi-Sankyo Co.Ltd was taken into account to
understand the rationale behind the deal.

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 Research Methodology
Research methods are very important for any investigation or acquisition of knowledge about
any problem, situation or any problem. In this research work the method/techniques used are
related to data collection.

Data Collection:

A. Secondary data:
Company financial statements
www.moneycontrol.com
Company website
Journals, newspapers and magazines
Government websites
Conference calls transcript

Limitation
While conducting the research, there are number of difficulties/hindrances that a researcher has
to face. During my project there were many such constraints which are stated below in the list:

It is tough to get all relevant data as Companies are not really eager to provide data and
the government or private sources are too costly.
Primary data is not available easily.
The whole work is based on secondary data which cannot be relied upon hundred
percent.
The main problem is that the company executives are always busy with their normal
work so they are not always able to spend time for our project.
The Merger and Acquisition itself is a huge concept which is not possible to be covered
within the prescribed time.

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 Literature Review
Even though mergers and acquisitions (M&A) have been an important element of corporate
strategy all over the globe for several decades, research on M&As has not been able to provide
conclusive evidence on whether they enhance efficiency or destroy wealth. There is thus an
ongoing global debate on the effects of M&As on firms. Mergers and acquisitions have become
common in India today. However, very little appears to be known about the long-term post-
merger performance of firms in India, and the strategic factors that affect this performance. Our
study attempts to fill this gap in knowledge about M&As in India.

Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate
finance world. Every day, investment bankers arrange M&A transactions, which bring separate
companies together to form larger ones. When they're not creating big companies from smaller
ones, corporate finance deals do the reverse and break up companies through spin-offs, carve-
outs or tracking stocks. Not surprisingly, these actions often make the news. Deals can be worth
hundreds of millions, or even billions, of dollars or rupees. They can dictate the fortunes of the
companies involved for years to come. For a CEO, leading an M&A can represent the highlight
of a whole career. And it is no wonder we hear about so many of these transactions; they happen
all the time. Next time you flip open the newspaper’s business section, odds are good that at least
one headline will announce some kind of M&A transaction. Sure, M&A deals grab headlines,
but what does this all mean to investors? To answer this question, this report discusses the forces
that drive companies to buy or merge with others, or to split-off or sell parts of their own
businesses. Once you know the different ways in which these deals are executed, you'll have a
better idea of whether you should cheer or weep when a company you own buys another
company - or is bought by one. You will also be aware of the tax consequences for companies
and for investors.

Defining M&A

The Main Idea, one plus one makes three; this equation is the special alchemy of a merger or
an acquisition. The key principle behind buying a company is to create shareholder value over
and above that of the sum of the two companies. Two companies together are more valuable than

5
two separate companies - at least, that's the reasoning behind M&A. This rationale is particularly
alluring to companies when times are tough. Strong companies will act to buy other companies
to create a more competitive, cost-efficient company. The companies will come together hoping
to gain a greater market share or to achieve greater efficiency. Because of these potential
benefits, target companies will often agree to be purchased when they know they cannot survive
alone.

Distinction between Mergers and Acquisitions

Although they are often uttered in the same breath and used as though they were synonymous,
the terms merger and acquisition mean slightly different things. When one company takes over
another and clearly established itself as the new owner, the purchase is called an acquisition.
From a legal point of view, the target company ceases to exist, the buyer "swallows" the business
and the buyer's stock continues to be traded. In the pure sense of the term, a merger happens
when two firms, often of about the same size, agree to go forward as a single new company
rather than remain separately owned and operated. This kind of action is more precisely referred
to as a "merger of equals." Both companies' stocks are surrendered and new company stock is
issued in its place. For example, both Daimler-Benz and Chrysler or Arcellor and Mittal ceased
to exist when the two firms merged, and a new company, DaimlerChrysler and Arcellor-Mittal,
was created. In practice, however, actual mergers of equals don't happen very often. Usually, one
company will buy another and, as part of the deal's terms, simply allow the acquired firm to
proclaim that the action is a merger of equals, even if it's technically an acquisition. Being
bought out often carries negative connotations, therefore, by describing the deal as a merger, deal
makers and top managers try to make the takeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that joining together is in the
best interest of both of their companies. But when the deal is unfriendly - that is, when the target
company does not want to be purchased - it is always regarded as an acquisition. Whether a
purchase is considered a merger or an acquisition really depends on whether the purchase is
friendly or hostile and how it is announced. In other words, the real difference lies in how the
purchase is communicated to and received by the target company's board of directors, employees
and shareholders.

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Synergy

Synergy is the magic force that allows for enhanced cost efficiencies of the new business.
Synergy takes the form of revenue enhancement and cost savings. By merging, the companies
hope to benefit from the following:

Staff reductions - As every employee knows, mergers tend to mean job losses. Consider all
the money saved from reducing the number of staff members from accounting, marketing
and other departments. Job cuts will also include the former CEO, who typically leaves with
a compensation package.

Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new
corporate IT system, a bigger company placing the orders can save more on costs. Mergers
also translate into improved purchasing power to buy equipment or office supplies - when
placing larger orders, companies have a greater ability to negotiate prices with their
suppliers.

Acquiring new technology - To stay competitive, companies need to stay on top of

technological developments and their business applications. By buying a smaller company
with unique technologies, a large company can maintain or develop a competitive edge.

Improved market reach and industry visibility - Companies buy companies to reach new
markets and grow revenues and earnings. A merge may expand two companies' marketing
and distribution, giving them new sales opportunities. A merger can also improve a
company's standing in the investment community: bigger firms often have an easier time
raising capital than smaller ones.

That said, achieving synergy is easier said than done - it is not automatically realized once two
companies merge. Sure, there ought to be economies of scale when two businesses are
combined, but sometimes a merger does just the opposite. In many cases, one and one add up to
less than two. Sadly, synergy opportunities may exist only in the minds of the corporate leaders
and the deal makers. Where there is no value to be created, the CEO and investment bankers -
who have much to gain from a successful M&A deal - will try to create an image of enhanced
value. The market, however, eventually sees through this and penalizes the company by

7
assigning it a discounted share price. We'll talk more about why M&A may fail in a later section
of this tutorial.

Varieties of Mergers

From the perspective of business structures, there is a whole host of different mergers. Here are a
few types, distinguished by the relationship between the two companies that are merging:

Horizontal merger - Two companies that are in direct competition and share the same
product lines and markets.

Vertical merger - A customer and company or a supplier and company. Think of a cone
supplier merging with an ice cream maker.

Market-extension merger - Two companies that sell the same products in different markets.

Product-extension merger - Two companies selling different but related products in the
same market.

Conglomeration - Two companies that have no common business areas. There are two types
of mergers that are distinguished by how the merger is financed. Each has certain
implications for the companies involved and for investors:

Purchase Mergers - As the name suggests, this kind of merger occurs when one company
purchases another. The purchase is made with cash or through the issue of some kind of debt
instrument; the sale is taxable. Acquiring companies often prefer this type of merger because
it can provide them with a tax benefit. Acquired assets can be written-up to the actual
purchase price, and the difference between the book value and the purchase price of the
assets can depreciate annually, reducing taxes payable by the acquiring company. We will
discuss this further in part four of this tutorial.

Consolidation Mergers - With this merger, a brand new company is formed and both
companies are bought and combined under the new entity. The tax terms are the same as those of
a purchase merger.

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Acquisitions

An acquisition may be only slightly different from a merger. In fact, it may be different in name
only. Like mergers, acquisitions are actions through which companies seek economies of scale,
efficiencies and enhanced market visibility. Unlike all mergers, all acquisitions involve one firm
purchasing another - there is no exchange of stock or consolidation as a new company.
Acquisitions are often congenial, and all parties feel satisfied with the deal. Other times,
acquisitions are more hostile. In an acquisition, as in some of the merger deals we discuss above,
a company can buy another company with cash, stock or a combination of the two. Another
possibility, which is common in smaller deals, is for one company to acquire all the assets of
another company. Company X buys all of Company Y's assets for cash, which means that
Company Y will have only cash (and debt, if they had debt before). Of course, Company Y
becomes merely a shell and will eventually liquidate or enter another area of business. Another
type of acquisition is a reverse merger, a deal that enables a private company to get publicly-
listed in a relatively short time period. A reverse merger occurs when a private company that has
strong prospects and is eager to raise financing buys a publicly-listed shell company, usually one
with no business and limited assets. The private company reverse merges into the public
company, and together they become an entirely new public corporation with tradable shares.
Regardless of their category or structure, all mergers and acquisitions have one common goal:
they are all meant to create synergy that makes the value of the combined companies greater than
the sum of the two parts. The success of a merger or acquisition depends on whether this synergy
is achieved.

Valuation Matters

Investors in a company that is aiming to take over another one must determine whether the
purchase will be beneficial to them. In order to do so, they must ask themselves how much the
company being acquired is really worth.

Naturally, both sides of an M&A deal will have different ideas about the worth of a target
company: its seller will tend to value the company at as high of a price as possible, while the
buyer will try to get the lowest price that he can. There are, however, many legitimate ways to
value companies. The most common method is to look at comparable companies in an industry,

9
but deal makers employ a variety of other methods and tools when assessing a target company.
Here are just a few of them:

1. Comparative Ratios - The following are two examples of the many comparative metrics on
which acquiring companies may base their offers:

Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring company makes
an offer that is a multiple of the earnings of the target company. Looking at the P/E for all the
stocks within the same industry group will give the acquiring company good guidance for
what the target's P/E multiple should be.

Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring company makes
an offer as a multiple of the revenues, again, while being aware of the price-to-sales ratio of
other companies in the industry.

2. Replacement Cost

In a few cases, acquisitions are based on the cost of replacing the target company. For
simplicity's sake, suppose the value of a company is simply the sum of all its equipment and
staffing costs. The acquiring company can literally order the target to sell at that price, or it will
create a competitor for the same cost. Naturally, it takes a long time to assemble good
management, acquire property and get the right equipment. This method of establishing a price
certainly wouldn't make much sense in a service industry where the key assets - people and ideas
- are hard to value and develop.

3. Discounted Cash Flow (DCF)

A key valuation tool in M&A, discounted cash flow analysis determines a company's current
value according to its estimated future cash flows. Forecasted free cash flows (operating profit +
depreciation + amortization of goodwill – capital expenditures – cash taxes - change in working
capital) are discounted to a present value using the company's weighted average costs of capital
(WACC). Admittedly, DCF is tricky to get right, but few tools can rival this valuation method.

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Synergy: The Premium for Potential Success

For the most part, acquiring companies nearly always pay a substantial premium on the stock
market value of the companies they buy. The justification for doing so nearly always boils down
to the notion of synergy; a merger benefits shareholders when a company's post-merger share
price increases by the value of potential synergy. Let's face it, it would be highly unlikely for
rational owners to sell if they would benefit more by not selling. That means buyers will need to
pay a premium if they hope to acquire the company, regardless of what pre-merger valuation
tells them. For sellers, that premium represents their company's future prospects. For buyers, the
premium represents part of the post-merger synergy they expect can be achieved. The following
equation offers a good way to think about synergy and how to determine whether a deal makes
sense. The equation solves for the minimum required synergy:

In other words, the success of a merger is measured by whether the value of the buyer is
enhanced by the action. However, the practical constraints of mergers, which discussed often
prevent the expected benefits from being fully achieved. Alas, the synergy promised by deal
makers might just fall short.

What to Look For - It's hard for investors to know when a deal is worthwhile. The burden of
proof should fall on the acquiring company. To find mergers that have a chance of success,
investors should start by looking for some of these simple criteria given as below.

A reasonable purchase price - A premium of, say, 10% above the market price seems within
the bounds of level-headedness. A premium of 50%, on the other hand, requires synergy of
stellar proportions for the deal to make sense. Stay away from companies that participate in
such contests.

Cash transactions - Companies that pay in cash tend to be more careful when calculating bids
and valuations come closer to target. When stock is used as the currency for acquisition,
discipline can go by the wayside.

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 Sensible appetite – An acquiring company should be targeting a company that is smaller and
in businesses that the acquiring company knows intimately. Synergy is hard to create from
companies in disparate business areas. Sadly, companies have a bad habit of biting off more
than they can chew in mergers.

Mergers are awfully hard to get right, so investors should look for acquiring companies with a
healthy grasp of reality.

Daiichi Sankyo Company, Limited

In 2005, Sankyo Co. Ltd and Daiichi Pharmaceutical announced the merger of two of the largest
Japanese pharma giants to form Daiichi Sankyo Co. Ltd. (DIS). Although DIS came into
existence only recently, its roots lie in the vast heritage of both its proponent enterprises. The
company gains from the 106 year old history of Sankyo Co. Ltd. (1899) and the 90 year old
heritage of Daiichi Pharmaceutical Co. Ltd (1915).

Current business of the company:

DIS's goal is to establish itself as a "Japan-Based Global Pharma Innovator". The following
excerpt from one of its annual reports elaborates the ideology behind each and every word of the
above goal…

Japan-Based

“This phrase means simply that the DAIICHI SANKYO Group originated in Japan. While we
are currently ranked third among pharmaceutical manufacturers in Japan, our global presence
still needs to be expanded. The word “Japan-Based” will be meaningless until the DAIICHI
SANKYO Group realizes its full potential and achieves recognition in the global market as well
as in Japan. To reach this level, we will need to achieve corporate growth in excess of the annual
5-6% predicted for the world market for pharmaceutical products....”

Global

“Given the size of the global market, we anticipate that the overseas operations of the DAIICHI
SANKYO Group will overtake its domestic operations in terms of business scale in the near

12
future. Based on our existing products and key products in the development pipeline, we estimate
that overseas sales will account for approximately 50% of total sales by fiscal 2010. Our goal is
to raise the contribution to at least 60% by fiscal 2015 by implementing three key policies. First,
we must expand our operations in other countries. Second, we must ensure that products in the
development pipeline are brought to market effectively. Third, we must attract external
resources. Our priority markets are Japan, North America and Europe, where we are already
active. In addition to the big three markets, however, we will also work to develop our business
operations in markets that offer growth potential, especially China and South America.”

Pharma Innovator

“This term describes our vision for DAIICHI SANKYO as a company that is customer-focused,
able to identify unmet medical needs of people throughout the world, and clearly has the means
to meet those needs through the continuous supply of innovative pharmaceutical products. There
are many potential benefits from the creation of innovative pharmaceutical products, including
the creation of totally new therapies, the improvement of existing therapies, the facilitation of
drug administration, the alleviation of side effects, the improvement of patients’ quality of life,
and the reduction of health costs. DAIICHI SANKYO will give priority to projects targeting
unmet medical needs in areas that offer excellent opportunities for growth and profit and are in
keeping with our goal of raising our global presence. We will focus mainly on new drugs that
can be classified as first-in-class and best-in-class.

The aim is to build drug development pipelines that will be lead to the development 16 of new
products with the potential to rank among the best three products in the world for the treatment
of specific diseases. Our current priority with regard to R&D pipelines is to commercialize a new
product with global market potential to succeed the hypertension drug Olmesartan as quickly as
possible. We will accelerate development and commercialization of distinctive new products that
match health needs and can be clearly differentiated from competing products as best-in-class.
Candidates include the anti-platelet agent Prasugrel (CS-747), and the orally administered anti-
Xa drug DU-176b.” DIS manufactures prescription drugs, including treatments for
cardiovascular, bone and joints, and infectious diseases. Its products are sold through medical
representatives located worldwide. The company also makes OTC products as well as veterinary

13
products and assorted chemicals. The Company has about 2,300 overseas medical
representatives in 33 locations, mainly in Europe and the United States and is also aiming for
growth through its own development and sales, mainly in the United States. For this it is
planning to expand the overseas development and sales bases.

DIS’s products are used not only in Japan but in many other parts of the world including Asia,
Europe and the USA. In order to cater to global needs all over the world and have them reflected
in its global pharmaceutical operations, the company is highly active in promoting information
exchange in a number of areas including research and development, supply chain management
and marketing.

Research and Development:

As a developer of new drugs, DIS is determined to contribute to treating diseases by giving the
world innovative medicines. This perhaps lays down the rationale behind the operations of the
R&D department at DIS.

DIS has its main R&D activities in Japan, though it has opened centers in other parts of the
world.

The number of R&D employees in various part of the world are:

Japan 2200
China 35
Germany 100
UK 30
USA 260

Currently, the company has decided to focus on four main areas for pursuing R&D activities.
These are

Thrombiosis
Diabetes
Cancer and
Autoimmune diseases/Rheumatoid Arthritis.

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Ranbaxy Laboratories Limited

Ranbaxy was founded in 1937 and derived its name from that of its founders – Ranjit Singh and
Gurbax Singh. It started out as the Indian distributor of vitamins and anti tuberculosis drugs for a
Japanese pharmaceutical company. After the Second World War, Ranbaxy continued its role as a
distributor and ventured in manufacturing drugs by setting up its first plant in 1961. Ranbaxy’s
first real breakthrough came in 1969 with Calmpose, a copy of Roche patented Valium
tranquillizer. By 1971, Ranbaxy had extended its strong position in anti infectives in the Indian
market and expanded manufacturing capacity to keep pace with sales.

Ranbaxy’s growth was fuelled by two major developments in the Indian pharmaceutical
industry. The first one was introduction of the Process Patent Act in 1970, which required Indian
companies to recognize international process patents. The Act did not recognise product patent.
In 1978 Ranbaxy became the first Indian company to develop a novel process for the
manufacture of the antibiotic doxycyclin. It also gained worldwide recognition after it developed
a non patent infringing process for the antibiotic cefaclor. This was remarkable, as the molecule
was complex and Eli Lilly, the product originator, had protected it with twenty two process
patents.

The second legislation was the Price Control Act which impacted Ranbaxy’s strategy. By
capping the drug prices in India, the government made the profits and growth prospects limited.
This prompted Ranbaxy to look at export markets to realize its growth targets. During the years
1986 to 1996 exports grew at an annual growth rate of 34%. Major markets contributing to the
growth were China, the UK, Italy, Russia, Ukraine and the USA. Due to the changing business
conditions, it had become essential in 1993 to change the strategy of the company in order to tap
rising opportunities. The senior management team of Ranbaxy underwent a strategic planning
exercise called Vision 2003. Ranbaxy aimed at to achieve two milestones by 2003: $ 1 billion in
revenues and the development of one new therapeutic chemical molecule.

The mission statement ‘To become an international, research based pharmaceutical company’
was posed with many challenges at all levels of the company. The company had to redefine its

15
product offerings and the markets it served. In structuring the foreign ventures, Ranbaxy focused
on the entire value chain to maximize margins. It became a truly international player in the sense
it not only collaborated with different companies world over but also set up its manufacturing
plant. In February 2004 Ranbaxy crossed a $ 1 billion mark in its turnover.

The other focus in line with Vision 2003 was the development of one new therapeutic chemical
molecule. Given the nature of Ranbaxy this aim was considered to be too ambitious a plan.

In 2003, again a strategic planning revival took place with a new plan in place called Vision
2012:

Aspire to be a $ 5 billion company by 2012

Become a top 5 global generics pharma company
Significant income from the proprietary products

The Company has decided to focus on therapeutic areas to meet its Vision 2012:

Infectious Diseases (Anti-bacterials and Anti-fungals),

Urology [Benign Prostatic Hyperplasia (BPH)and Urinary Incontinence],
Metabolic Diseases (Type 2 Diabetes, Hyperlipidemia) and
Inflammatory / Respiratory diseases (Asthma, Chronic Pulmonary Obstructive Disease
and Rheumatoid Arthritis).

These choices allow Ranbaxy to enter large markets with significant unattended medical needs
and to build on its research strengths. In 2008, Ranbaxy achieved a consolidated sale of $ 1.7
billion.

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 Data Collection and Data Analysis
Details of the deal

About the merger…..

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 to which 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 per share with 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.20,000 corers.

DIS was to further seek to acquire majority of shares of Ranbaxy at the same price. This valued
Ranbaxy, as per news paper reports, on a post-closing basis at a whopping $ 8.5 billion. The
negotiated price of Rs 737 represented a premium of 31.4% over the market price of Ranbaxy on
the day of the announcement.

Additionally, DIS acquired shares issued by Ranbaxy on preferential basis, and also through an
open offer (to comply with regulatory requirements). Further, 23,834,333 warrants were allotted
to DIS with each warrant representing 1 share that could be converted at Rs 737 per share at any
time between 6 to 18 months from the date of allotment. In this respect, Rs 73.70 per warrant
was to be paid by DIS.

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),

17
(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.

When the deal closed in November 2008, DIS had acquired 63.92% of the equity share capital of
Ranbaxy as shown in Exhibit 1 below:

Date of Acquisition Particulars Number of Shares

15-Oct Acquisition of Shares under Open Offer 92,519,126

20-Oct Allotment of Shares on Preferential basis 46,258,063

20-Oct Acquisition of Shares from the Singh family 81,913,234

7-Nov 7 Acquisition of Shares from the Singh family 48,020,900

Total 268,711,323

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Shareholder pattern before merger:
GENERAL
SINGH 34.82 PUBLIC, 1
2.1
SINGH'S
FAMILY 20.34 F.I.I., 12.4
MUTUAL FUND 5.56 2 SINGH, 34
BANKS 0.37 .82
INSURANCE INSURAN
CO. 14.39 CE
CO., 14.3
F.I.I. 12.42 9
GENERAL MUTUAL SINGH'S
BANKS, 0.
PUBLIC 12.1 FUND, 5.5 FAMILY, 2
37
6 0.34

Shareholding pattern after merger:

% share
held
D.SANKIYO 63.92
MUTUAL FUND 2.58
BANKS 0.37
INSURANCE
CO. 9.19
F.I.I. 4.41
GENERAL
PUBLIC 19.53

19
Synergies

The key areas where Daiichi Sankyo and Ranbaxy are synergetic include their respective
presence in the developed and emerging markets. While Ranbaxy’s strengths in the 21 emerging
generic drug markets can allow Daiichi Sankyo to tap the potential of the generics business,
Ranbaxy’s branded drug development initiatives for the developed markets will be significantly
boosted through the relationship. To a large extent, Daiichi Sankyo will be able to reduce its
reliance on only branded drugs and margin risks in mature markets and benefit from Ranbaxy’s
strengths in generics to introduce generic versions of patent expired drugs, particularly in the
Japanese market.

Both Daiichi Sankyo and Ranbaxy possess significant competitive advantages, and have
profound strength in striking lucrative alliances with other pharmaceutical companies. Despite
these strengths, the companies have a set of pain points that can pose a hindrance to the merger
being successful or the desired synergies being realized.

With R&D perhaps playing the most important role in the success of these two players, it is
imperative to explore the intellectual property portfolio and the gaps that exist in greater detail.
Ranbaxy has a greater share of the entire set of patents filed by both companies in the period
1998-2007. While Daiichi Sankyo’s patenting activity has been rather mixed, Ranbaxy, on the
other hand, has witnessed a steady uptrend in its patenting activity until 2005. In fact, during
2007, the company’s patenting activity plunged by almost 60% as against 2006.

Significant Differences in Patenting

Daiichi Sankyo had a more diverse technology spread compared to Ranbaxy. The top four IPCs
of Ranbaxy and Daiichi Sankyo accounted for almost 94% and 72% of the total number of patent
families analyzed, respectively.

An IPC gap analysis for the two players revealed that patent families of these companies were
spread across 43 different IPCsHormones and gastro-intestinal drugs are exclusive therapeutic
areas that Teva Pharmaceuticals has obtained approvals for compared to Ranbaxy and Daiichi
Sankyo in the same period. Barr Pharmaceuticals, on the other hand, held 54 ANDA approvals

20
filed across 15 therapeutic segments. The unique segments of Barr Pharmaceuticals include
hormones, uro-genital drugs and bone disorder drugs.

Three New Drug Application (NDA) and Biologic License Application (BLA) approvals by the
US FDA were obtained by Ranbaxy as of 6 September 2008 for the period January 2003-
September 2008, while in the same period, Daiichi Sankyo obtained only two approvals. Teva
Pharmaceuticals obtained five NDA and BLA approvals while Barr Pharmaceuticals did not
obtain any approvals.

Post-acquisition Objectives

In light of the above analyses, Daiichi Sankyo’s focus is to develop new drugs to fill the gaps
and take advantage of Ranbaxy’s strong areas. To overcome its current challenges in cost
structure and supply chain, Daiichi Sankyo’s primary aim is to establish a management
framework that will expedite synergies. Having done that, the company seeks to reduce its
exposure to branded drugs in a way that it can cover the impact of margin pressures on the
business, especially in Japan. In a global pharmaceutical industry making a shift towards
generics and emerging market opportunities, Daiichi Sankyo’s acquisition of Ranbaxy signals a
move on the lines of its global counterparts Novartis and local competitors Astellas Pharma,
Eesei and Takeda Pharmaceutical. Post acquisition challenges include managing the different
working and business cultures of the two organizations, undertaking minimal and essential
integration and retaining the management independence of Ranbaxy without hampering
synergies. Ranbaxy and Daiichi Sankyo will also need to consolidate their intellectual capital and
acquire an edge over their foreign counterparts.

Benefits to Daiichi & Sankyo:

The acquisition has pave the way for creating a new and complementary hybrid business model
that provides sustainable growth by diversification that spans the full spectrum of pharma
busniess.

21
Growth:

While DIS grew at 4.7% in 2007 to $ 7.12 billion, Ranbaxy grew at over 10% to $1.6 billion.
This reflects the story of the innovator and the generic companies. While the world pharma
industry grew at 6%, the generics segment is growing at 11%. The pursuit of a dual business
segment strategy will help DIS to improve its growth rate substantially. Jointly, the two
companies will rank 15th in the global pharmaceutical market, whereas independently Ranbaxy
stood at 50th and DIS at 22nd.

Reach:

DIS would be able to extend its reach to 56 countries (especially emerging markets) from 21
countries where they currently operate. DIS therefore gets the front–end infrastructure. The
combined business will have a significant position in India, Eastern Europe and Asia and one of
the largest presence in Africa. In some of the countries, like Mexico, Russia, DIS has so far not
operated.

Cost Savings in Manufacturing, Sales and R&D:

The most important benefit will be the low-cost manufacturing infrastructure and supply chain
strengths of Ranbaxy. DIS will be able to bring in efficiency in its operations by sourcing APIs
and finished dosage products from Ranbaxy’s 9 manufacturing plants in India and many more in
other countries. Mr. Kurosawa did a quick back of the envelope calculations. One of the products
DIS makes is Ofloxacin. Its sales in 2007 were ¥ 108.7 billion. The average cost of goods sold
for DIS is about 30%. Mr. Kurosawa believes that by sourcing it from Ranbaxy, DIS will at least
save ¥ 6.52 billion. Capitalizing the savings at 6% cost of capital, and based on 373 million share
capital of Ranbaxy in 2007, the cost saving by outsourcing just one product will be Rs 146 per
share. Additionally, there will be cost savings for conducting clinical trials and collaborating on
research and sales across the world.

R&D to speed up new development:

The cost competitive R&D facilities of Ranbaxy would be looked forth by DIS to not only
reduce some of its R&D expenses, but also use competencies of Ranbaxy scientists to hasten

22
new product development. DIS also gets Zenotech's (where Ranbaxy has substantial equity
stake) expertise in the areas of biologics, oncology and specialty injectables.

Benefits to Ranbaxy:

Ranbaxy aims to derive a lot of potential benefits by merging with DIS. The immediate benefit
for Ranbaxy is cash infusion of Rs 34 billion via fresh issue of shares to DIS. This can be used to
free up its debt. The acquisition allows Ranbaxy to "significantly transform itself" from being a
generic player to becoming a much stronger player with innovation, research and development
and a far larger pipeline to leverage globally. It gains smoother access to and a strong foothold in
the Japanese drug market (which is the second largest market in the world). Ranbaxy also gains
access to DIS' research and development expertise to advance its branded drugs business.
Moreover, it sees opportunities to strengthen its API (Active Pharmaceutical Ingredient. Or bulk
active, is the substance in a drug that is pharmaceutically active) business by working with DIS
as a supply partner.

Multiple benefits:

It was the changing dynamics of the global pharmaceutical business that prompted the
acquisition in the first place. As innovator companies struggle to keep their heads above water,
while swimming from one blockbuster drug to another, they are now trying to diversify their
business. One of the methods being adopted is adding generics to their portfolios and increasing
their presence in fast-growing emerging markets. For instance, in early 2008, Paris-
headquartered Sanofi-Aventis took over Medley, Brazil’s top generic drug maker, while UK-
based GlaxoSmithKline acquired a 19 per cent stake in South Africa’s Aspen. Daiichi’s buyout
of Ranbaxy was along similar lines.

The first point of integration is in marketing synergies. While Daiichi, Japan’s third-largest drug
maker, has footprints in Japan, Europe and the US, it has little presence in emerging markets,
which are the hotspots of growth for the global pharma industry. In comparison, Ranbaxy has a
presence in 48 countries, including fast-growing emerging markets such as South Africa, Brazil
and Russia. Daiichi will, therefore, leverage Ranbaxy’s global distribution network to boost sales
of its patented products in emerging markets.

23
To start with, Ranbaxy has introduced some of Daiichi’s products in India (anti-hypertensive
Olvance), Romania (osteoporosis medication Evista) and in six African countries
(antihypertensive Olmesartan Medoxomil). “In another year, we will introduce some of Daiichi’s
products in 20 markets globally,” says Atul Sobti, Ranbaxy’s CEO. “In some countries, Daiichi
is selling its drugs through distributors. So it may take some time for it to pull out from these
contracts, and for Ranbaxy to take over.”
Initially, Daiichi will manufacture and sell its products to Ranbaxy, which will merely distribute
them, and pay royalty on sale to Daiichi. But with time, Daiichi may use Ranbaxy’s
manufacturing facilities, which will bring down its costs substantially. Ranbaxy may
manufacture active pharmaceutical ingredients (APIs, raw materials that are used to manufacture
finished drugs) and later, the finished products. “The key is to maintain good quality,” says
Sobti.
Another area where the two sides would collaborate is research and development (R&D), where
Daiichi has a distinct edge. According to Sobti, Ranbaxy’s 200 scientists could support Daiichi’s
research effort. “Anyway, this is not a core area for Ranbaxy,” adds Sobti. Such a move would
benefit both companies. For Daiichi, it would bring down R&D expenses, which typically
comprise 15-20 per cent of innovator companies’ annual sales. For Ranbaxy, it would mean
additional revenues.

Putting Compound Elements Together

Japan’s pharma major Daiichi Sankyo and its new Indian subsidiary Ranbaxy have an extensive
plan to use each other’s resources and strengths for mutual benefit

Daiichi Sankyo is present in Japan, Europe and the US, but has little presence in
emerging markets, the hotspots of growth. Ranbaxy is present in 48 countries, including
South Africa, Brazil and Russia. Daiichi will leverage Ranbaxy’s global distribution
network to boost sales of its patented products in emerging markets

Daiichi may use Ranbaxy’s manufacturing facilities, which could bring down costs
substantially

24
 Ranbaxy could support Daiichi in R&D as well. This would cut R&D expenses — a
major component of costs — for Daiichi while giving Ranbaxy additional revenues

Potential synergies in IT systems and supplychain management also exist

Scenario development post deal

Pfizer & Ranbaxy settlement on LIPITOR:

One week after the DIS announcement, Ranbaxy announced that it had entered into an
agreement with Pfizer Inc. to settle most of the patent litigation worldwide involving Pfizer’s
cholesterol fighting drug Lipitor (generic name Atorvastatin). Lipitor is the world's largest
selling drug with worldwide sales in 2007 of $ 12.7 billion. Under the terms of the agreement,
Ranbaxy will delay the start of its 180 days exclusivity period for a generic version of Lipitor,
until November 2011. While the settlement avoided further legal cost for Ranbaxy in fighting
against Pfizer, if it had won the case, Ranbaxy could have introduced generic version as early as
March 2010. After the announcement of the agreement, Ranbaxy shares declined by 7.7% as
against market decline of 2.2%.

In 2008, Ranbaxy had settled with AstraZeneca on its $ 7 billion heartburn drug Nexium, GSK
on its $ 985 million migraine medicine Imitrex and its anti-herpes drug Valtrex with sales of $
1.3 billion.

FDA Issued Warning Letters to Ranbaxy:

The Food and Drug Administration (FDA) issued two Warning Letters to Ranbaxy Laboratories
and an Import Alert for generic drugs produced by Ranbaxy's Dewas and Paonta Sahib plants in
India on 16th September 2008. Import Alert, under which U.S. officials could detain at the U.S.
border, any API and finished drugs manufactured at these Ranbaxy facilities.

The Warning Letters identified the agency's concerns about deviations from U.S. current Good
Manufacturing Practice (cGMP) requirements at Ranbaxy's manufacturing facilities in Dewas
and Paonta Sahib (including the Batamandi unit), in India.

25
The points covered in the warning letters were:

Measures taken to control cross-contamination appeared inadequate ;

Inadequate batch production, control records, failure investigations and sterile processing
operations;
Absence of Assurance Responsible individuals to determine if the firm was taking
necessary steps under cGMP; and
Inaccurate written records of the cleaning and use of major equipment

Ranbaxy after this announcement agreed to cooperate and work with FDA to improve the
suggested inadequacies in these two plants.

Analysts estimate the loss of business to Ranbaxy as a result of blocking the sale of 30 generic
medicines to be at $ 40 million. The news saw Ranbaxy scrip end the day down 6.6% on BSE 2.

Post the deal, there were doubts raised, since there has been no recent example of a generic
company being integrated into an innovator company. Some also highlighted the possibilities of
cultural clashes – innovator companies have always seen themselves as superior to generic
companies. Besides, the Japanese culture of consensus-building and team playing could be new
for promoter-run company. Mr. Kurosawa, after collecting all the information, sat down to
prepare the report to the management of the fund.

Reason for the deal:

Daiichi Sankyo and Ranbaxy believe this transaction provides the significant long-term value for
all stakeholders through:

a) 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.
b) An expanded global reach that enables leading market positions in both mature and
emerging markets with proprietary and non-proprietary products. Ranbaxy has large

26
 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.
c) 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.
d) 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 unitand that is
directly beneficial to customers. Cost advantage get in the India ,by that surplus amount
utilise into r&d.

…What Daiichi gets

Largest pharma company in India, with domestic revenues of $301 million and market
share of around 5 per cent

Local operations in 49 countries, several of them in emerging markets such as Brazil,

South Africa, Romania, among others. Also, a big presence in Eastern Europe, Asia and
Africa

World-class manufacturing facilities in 14 countries such as Brazil, China, Ireland, India,

Japan, Malaysia, Nigeria, Romania, South Africa, USA and Vietnam

More than 1,400 people in research and development; 300 in innovative research

98 pending ANDA approvals, 18 of which are those where Ranbaxy may get the 180-day
marketing exclusivity on the drug going off patent. Innovators' annual (2007) sales for
these drugs: $27 billlion.

27
Ranbaxy Financials:

At an operational level, amidst the challenges of the global economic environment, change of
ownership, foreign exchange impact, and compliance, Ranbaxians across the world have
responded with strong character and resilience, and performance.

Sales for 2009 were US $ 1.52 Bn (Rs. 7,344 crores);

Profit Before Tax (PBT) was US $ 209 Mn (over Rs. 1,000 crores);
Profit After Tax (PAT) was US $ 64 Mn (Rs. 311 crores).

The Company recorded net consolidated sales of Rs. 73,441 Mn against Rs.72,555 Mn in the
previous year. Profit before Tax stood at Rs.10,098 Mn against a loss of Rs. 15,000 Mn for the
previous year. Profit after Tax for the year stood at Rs. 3,107 Mn against a loss of Rs. 9,349 Mn
for the previous year. The turnaround in profits from operations was primarily on account of
revenues from First to File products in the US market, cost optimization and higher gross margin
due to changes in product mix. The strengthening of rupee versus dollar also contributed towards
increased earnings. The Company continues to focus on cost optimization and efficient working
capital management.

Dec '07 Dec '08 Dec '09

Sales Turnover 4,344.39 4,676.21 4,797.49
Net Sales 4,293.02 4,652.04 4,781.59
Total Income 4,884.81 3,179.99 5,301.21
Total Expenses 3,919.09 4,511.46 4,162.91
Operating Profit 414.59 256.17 652.64
PBDIT 965.72 -1,331.47 1,138.30
Gross Profit 986.57 331 1,100.28
Reported Net Profit 617.72 -1,044.80 571.98
Earnings Per Share 16.56 -- 13.61
Total Value Addition 2,057.93 2,462.16 2,079.62
Equity 186.54 210.19 210.21
Figures in crores.

This is some of the financial data regarding Ranbaxy’s performance before and after the
merger.

28
 Pre-merger Post-merger
Dec '07 Dec '08 Dec '09
Total Income 4,884.81 3,179.99 5,301.21
PBDIT 965.72 -1,331.47 1,138.30
PBDIT Margin 19.77 -41.87 21.47
Operating Profits 414.59 256.17 652.64
Operating Profit Margin
(%) 8.49 8.06 12.31
Net Profit 617.72 -1,044.80 571.98
Net Profit Margin (%) 12.65 -32.86 10.79

The EV/EBITDA ratio of Ranbaxy:

The EV/EBITDA ratio is a relevant ratio for financial analysis. Ranbaxy Laboratories shows a
EV/EBITDA ratio of 15.76 for the next 12 months, which is significantly higher than the
median of its peer group: 7.57 according to this financial analysis Ranbaxy Laboratories
valuation is way above its peer group’s. This ratio is significantly higher than the average of its
sector (Pharmaceuticals) 7.27 according to this financial analysis Ranbaxy Laboratories
valuation is way above its sector.

Ranbaxy Laboratories Peer group

EV/EBITDA
Enterprise Value(in
Relevance Score
thousands USD) next 12
2010
mth

Ranbaxy Laboratories 4 698 019 14.80 15.76

Dr Reddy Laboratories 5 547 875 15.17 14.65 100%

Salix Pharmaceuticals 2 054 424 102.50 31.82 97%

Astellas Pharma 9 319 223 4.28 4.14 89%

Aspen Pharmacare 4 816 869 9.37 9.36 87%

29
The projected financial figures of Ranbaxy in the post merger period are given below:

POST MERGER PERIOD

2010E 2011E
Net sales 83 001 89 425
Growth 13.20% 7.70%
Ebitda 14 757 12963
Margin 17.80% 14.50%
Ebit 11 783 10270
Margin 14.20% 11.50%
Net income 10 282 8825
Margin 12.40% 9.90%

As we have critically examined the financials of Ranbaxy in the pre merger and post merger
period now it is necessary to do some important ratio analysis to understand the rationale behind
the merger.
1. Current Ratio:

2006 2007 2008 2009

Current Ratio 1.04 1.51 0.24 0.46

The current ratio (CR) is calculated by dividing current assets (i.e. working capital) by current
liabilities.
CR = Working Capital / Current Liabilities
The calculation of the ratio may require any of the modifications mentioned for working capital
and current liabilities.
Current ratio of 2:1 should always be maintained by any company so that they can meet their
current liabilities with their current asset. But for Ranbaxy the ratio is not up to that mark. Before
merger the ratio was good but in FY2008 the ratio declined badly. In FY2009 the ratio has
improved and it is expected to improve further in coming years.

30
 2. Quick Ratio:

Dec ' 05 Dec ' 06 Dec ' 07 Dec ' 08 Dec ' 09

Quick ratio 0.98 1.03 0.96 0.86 0.88

Generally a quick ratio of 1:1 is satisfactory because this means that the quick assets of the firm
are just equal to the quick liabilities and there does not seem to be a possibility of default in
payment by the firm. Quick ratio is considered to be better test of liquidity than current ratio.
As we see above from FY05 to FY09 the ratio is almost 1:1. In FY08 the ratio was less than 1
whereas it has been improved in FY09.

3. Return on Equity:

2005 2006 2007 2008 2009

Return on Equity 9.41 16.44 24.34 -27.77 13.83

The ROE indicates as to how well the funds of the owner have been used by the firm. It also
examines whether the firm has been able to earn satisfactory return for the owners or not.
Therefore, the owners/shareholders of the firm would probably be most interested in the ROE
analysis.
From the above table its is clear that pre merger return and post merger return does not match but
it is showing an increasing trend which has built confidence in the mind of the shareholders who
have substantial share in the company.

4. Other important ratio are as follows:

2005 2006 2007 2008 2009

Adjusted EPS (Rs) 2.7 11.67 1.29 14.66 1.74
Adjusted cash EPS (Rs) 5.42 14.53 4.48 18.34 5.26
Reported EPS (Rs) 5.69 10.21 16.56 -24.85 13.61

Reported cash EPS (Rs) 8.41 13.08 19.74 -21.18 17.13

31
 Dividend per share 8.5 8.5 8.5 - -
Operating profit per share
(Rs) 4.9 16.96 10.72 5.97 15.49
Book value (excl rev res) per
share (Rs) 63.82 63.03 68.01 84.24 94.16
Book value (incl rev res) per
share (Rs.) 63.82 63.03 68.01 84.24 94.16
Net operating income per
share (Rs) 97.75 111.76 115.07 110.67 113.73
Free reserves per share (Rs) 58.26 57.48 62.52 80.8 88.9

From the above table it is clear that all the ratios have not shown a significant change before after
merger. So from this we can conclude that the merger is not a debacle for Ranbaxy rather we can
say that this is quite a good decision for the firm which will bring long term benefits for the both
firms as well as the society.

32
Other key facts:

For CY2010, Ranbaxy has guided for Revenues of Rs7,800 cr, implying yoy growth of
6% and PAT of Rs460cr resulting in growth of 48% on INR/USD assumption of Rs46.
The company has outstanding FX derivative to the tune of US $1bn spread over the next
five years.
In order to increase its market share in India’s Formulation market, the company has
started project ‘Viraat’, which will bear fruits for the company from 2HCY2010.
Ranbaxy has also acquired brands in the Dermatology and Pain Management Segments
from Ochoa Labs.
Ranbaxy supplied trial batches of 160kg of Nexium API to Astra and expects commercial
supply to kick-in over the next 6-9 months.
On the USFDA front, post issue of the warning letter to one of its facilities at Ohm Labs,
the company is reviewing its Global manufacturing process. On Dewas, the company has
indicated that USFDA will put the facility on its inspection route, once the travel
advisory issued is withdrawn. For CY2010, the company is targeting closure of issues
related to both the US FDA and DOJ.
Ranbaxy would unveil its synergy plans with Daiichi by 1HCY2010.

For 2009, the company recorded Global Sales of US $1,519 mn. The company has a balanced
mix of Revenues from Emerging and Developed markets that contribute 54% and 39%,
respectively. In June 2008, Ranbaxy was acquired by one of the largest Japanese innovator
companies, Daiichi Sankyo, to create an innovator and generic pharmaceutical powerhouse. The
combined entity now ranks among the Top-20 pharmaceutical companies, globally.

33
Effect on stock market:

This is the graph which shows the behavior of the Ranbaxy stocks after merger with Daiichi.
From the graph it is quite clear that the price raised immediately the merger and in FY2009 due
to fall in earnings the prices witnessed a severe fall but again showed an increase from the
starting of FY2010 till now.

34
 Findings
Benefit of the Deal

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
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

Outcomes 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 industry.
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

Effect on Stock Market

The share price of Ranbaxy rose 3.86% to Rs 526.40 on June 9, two days before the
company announced its buyout by Daiichi Sankyo.
The benchmark Sensex plunged 506 points the same day

35
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

36
Challenges for Daiichi:

Defining the corporate governance structure.

Leveraging strengths of both entities and defining targets for the combined entity.
Implementing robust planning processes to enable the merged entity to function
optimally in the post merger context.
Aligning the employees to the vision of the combined entity, thus increasing
employee morale and minimizing employee attrition.
Assessing the implications of the cultural differences and establishing a common way
of working.
Communicating to all customers and business partners especially given that a merger
lends vulnerability to any organization from a competitive perspective.

37
 Conclusion
For Daiichi Sankyo ,the strategy of acquisition of 63.92% is best. The alternate way will not
beneficial as such successes in today’s. The majority buy out in Ranbaxy made them strategic
partner for exploring the Asian market. Ranbaxy acquisition gives benefit in terms of cost
advantage.

The deal is a win-win for both Ranbaxy and Daiichi. Ranbaxy couldn’t have grown much on the
basis of first to file. It has actually left out the NCE pipeline which Teva has done. It actually left
out the bio-similar plant which they were desperately trying to do through Zenotech. So,
Ranbaxy’s opportunities seem to have exhausted.

Daiichi, on the other hand, is a small company with 2-3 big brands like Olmesartin and Avista
which is a huge cancer drug. It is one of the best gold standard cancer drugs.

For Daiichi, it was important to have some kind of generic play that Novartis has with Sandoz,
which is the second largest generic company in the world. Novartis is a USD 30-35 billion
company. Maybe Daiichi at the very start of that graph is trying to do exactly that. They have a
great play in Ranbaxy, which has a manufacturing and research base. It will also benefit from the
cost-competitive advantage and then grow its business from the two angles.

Ranbaxy laboratories ltd. could use acquisition of small Japanese firm or any well known
growing which boost the growth of the firm. The Promoter’s whole portion 63.92% shareholding
sale out was creating lots question. But they could sold portion of them , so that the 54 years
experienced will with Ranbaxy.

In summary, Daiichi Sankyo’s move to acquire Ranbaxy will enable the company to gain the
best of both worlds without investing heavily into the generic business. The patent perspective of
the merger clearly indicates the intentions of both companies in filling the respective void spaces
of the other and emerge as a global leader in the pharmaceutical industry. Furthermore, Daiichi
Sankyo’s portfolio will be broadened to include steroids and other technologies such as sieving
methods, and a host of therapeutic segments such as anti-asthmatics, anti-retrovirals, and
impotency and anti-malarial drugs, to name a few. Above all, Daiichi Sankyo will now have

38
access to Ranbaxy's entire range of 153 therapeutic drugs across 17 diverse therapeutic
indications. Additional NDAs from the US FDA on anti-histaminics and anti-diabetics is an
added advantage.

Ranbaxy laboratories ltd. (which was the no.1 pharmaceutical company in India) acquired by
Daiichi Sankyo Company 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.

39
 Bibliography

Ranbaxy company website

www.moneycontrol.com

www.wikipedia.com

Economic Times of India

The Hindustan Times

www.bseindia.com

www.nseindia.com

Financial Management book by R.p. Rustogy

40