RANBAXY SUN PHARMA ACQUISITION DEAL

About Ranbaxy
Ranbaxy Laboratories started its operations in the year 1961 and is a member of the Daiichi Sankyo
group of Tokyo, Japan, which holds majority shares of Ranbaxy (63.4% outstanding shares). Ranbaxy
went public in 1973 and entered the United States in 1998 which was the world's largest pharmaceuticals
market then and hence became the first foreign generics manufacturer to sell drugs in the US. Ranbaxy
has ground operations in 43 countries and 21 manufacturing facilities located in 8 countries, with its
products sold across more than 150 countries. Ranbaxy has a strong global footprint and presence in the
generics segment.
Loopholes in Ranbaxy:
With great difficulty, Ranbaxy has been able to meet its sales targets for the year, incurring a net loss and
a declining in net worth since 2011.
All this took place due to the massive payment of US$ 515 million paid to the US Department of Justice
in 2013 because of the civil and criminal charges against Ranbaxy for misrepresentation of data and
irregularities in two of its facilities in Northern India, an allegation made in 2008 and proven in 2013.
Along with this, there is also diminution in the value of its investments and a loss on foreign currency
option derivatives.
About Sun Pharma
Sun Pharma is a major global specialty pharmaceutical company expert in complex and niche therapy
areas such as cardiology, psychiatry, neurology, gastroenterology and diabetology. selling pharmaceutical
formulations and active pharmaceutical ingredients in India and the United States. Sun Pharma has a
clean and successful record of turning around its acquisitions in the past, convering distressed businesses
into successful ones. Sun Pharma has a strong presence in the US (60% of sales) and India (23%), while
the rest of the world accounts for 17% sales.
Sun Pharma has also faced issues over compliance with the Food and Drug Administration of the US.
Valuation Assumptions and their Sources
Assumption
Time Period for Valuation August 2014
Projected Cash Flows (2015 to 2017)
Risk Free Rate 8.57%
Beta 0.38
Growth Rate 10%

Source
When the deal started after approval of CCI
Motilal Oswal Report
August 2014, 10 year Government Bond Yield
Reuters
ICRA Report

Chosen method of valuation:

The DCF method of valuation has been chosen to value Ranbaxy, since the share prices at this time are
falling for Ranbaxy and the market valuation would have come out to be less, pertaining to the negative
sentiment absorbed by the market of the allegations against Ranbaxy by the US FDA. By DCF, the
valuation of Ranbaxy came out to be USD 5.189 billion. As against this, the market valuation is USD
4.218 billion. We did not undertake Net Asset Valuation because it is a pharmaceutical company and
many of its assets are likely to be intangibles.
Advantages of the deal to Sun Pharma:
The two companies complement each other in their areas of expertise and efficiency, functionally as well
as geographically.
With the acquisition, it is expected that Sun Pharma will become the 5 th largest pharmaceutical company
worldwide in terms of revenues, having operations in over 55 markets and 40 manufacturing facilities
globally.
The new merged company will have a highly complementary portfolio of products for both acute and
chronic treatments.
The acquisition will make it the number 1 in the generic dermatology market, number 3 in the branded
dermatology market and the largest Indian pharma company operating in the U.S.
They will gain from the 184 Abbreviated New Drug Applications awaiting US FDA approval, which
includes a lot of High-value First to File opportunities.
It will be able to step into the emerging pharma markets like Russia, Romania, Brazil, Malaysia and
South Africa by cross-selling and brand building.
The new company would be able to undertake 47% of its sales in the US, 31 % in the rest of the world
and 22% in India.

References:
http://www.businesstoday.in/moneytoday/stocks/ranbaxy-acquisition-good-for-sun-pharmashareholders-experts/story/205526.html
https://www.crisil.com/Ratings/Brochureware/News/08.04.14.2.pdf
http://icra.in/Files/ticker/Indian%20Pharmaceutical%20Sector.pdf
http://www.investopedia.com/articles/investing/022615/ranbaxy-and-sun-pharma-mega-indianmerger.asp
http://in.investing.com/rates-bonds/india-10-year-bond-yield-historical-data
http://in.reuters.com/finance/stocks/overview?symbol=RANB.NS
http://www.livemint.com/Companies/tvbrlhX1YGdm7GshBC44VL/Sun-Pharma-completesRanbaxy-merger-shares-jump.html

 http://www.moneycontrol.com/news_html_files/news_attachment/2014/RanbaxyLabs_MOST_31
0714.pdf
http://profit.ndtv.com/news/corporates/article-ranbaxy-delists-on-completion-of-merger-with-sunpharma-10-facts-752543
http://www.livemint.com/Companies/5lZkAlZmWtlVcN7qOvJveK/FDA-inspection-findsincomplete-records-at-Sun-Pharmas-Halo.html

Submitted by:
Akshita Mehra
Amrita Arora
Nikita Garg
Nishu Soni
Shubham Sharma