Report on Acquisition of Ranbaxy

A

GROUP ASSIGNMENT ON ACQUISITION OF

BY

SUBMITED TO; SUBMITED BY;

MRS. PUJA BHATT, AMIN JIGAR.

DIRECTOR, EKTA SHAH.

I.M.I. CHIRAG BHADANG.

VIPA SHAH.

BHAVNA JAIN.

SUNNY SAMRANI.

EKTA PATEL.

RITESH KA.PATEL.

DAIICHI SANKYO COMPANY LTD. & RANBAXY LABORATORIES LTD. Page 1

Sr.No. Particulars Page No.

A About The Acquisition 03

B History of the Companies 05

C Companies Profile 09

D Reasons for the Deal 14

E Financial Data 15

F Market Share of the Companies 18

G SWOT Analysis of Indian Pharma.Industry 20

H Alternate Strategies of the companies 23

I Conclusion 24


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.

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.


In 1894,Matasaku Shibora, Shotaro, Genjio Fukuji started the small enterprise in Tokyo named as Sankyo Pharma Ltd. .

In 1913,Dr. Katsuzaemon Keimatsu and others established Arsemin Shokai named small enterprise.

In 1916,Dr.K.Keimatsu gave the new name as; Daiichi Pharmaceuticals Co. Ltd.

In 1949 both companies separately listed on Tokyo Stock exchange.

Established Sankyo USA Corporation (New York City, USA)・Established Sankyo Europa GmbH (Dusseldorf, Germany),in 1990.


In April 2005,establishment of DAIICHI SANKYO COMPANY LIMITED (Sankyo Co., Ltd. and Daiichi Pharmaceutical Co., Ltd. a joint-holding company).

From 1st April2007 ,it started its operation as the newly formed “DAIICHI SANKYO GROUP”.


IN 1960;

Shri. Surendar Sigh started the Ranbaxy Laboratories (pvt.)ltd.

IN 1973;

RANBAXY pharmaceuticals ltd. Make an I.P.O.& set up a multi-chemical plant in

Mohali, Punjab.

IN 1977;

RANBAXY’s first joint venture was set up in Logas(Nigeria).

IN 1988;

It granted its first U.S.Patent for product,”Doxycyline”.

IN 1992;

It entered into an agreement with Eli Liily &co. of U.S.A. for setting up a joint Venture in India to market select Lilly products.

IN 1995;

It acquired “Ohm Laboratories Ltd.”, a manufacturing facility in U.S.A. Then it becomes the wholly subsidiary of Ranbaxy.

IN 2000;

It acquired the German company Bayer’s Generic Business (trading under the name of Basics.) and also entered into Brazil, the largest Pharmaceuticals market in South Africa.


IN 2001;

Ranbaxy U.S.A. (the wholly subsidiary of R.L.L.) crossed sales of US $ 100 million and become the fastest growing company in the U.S.

IN 2003;

Ranbaxy and Glaxo SmithKline Plc (GSK) enter into a global alliance for drug discovery & development.

IN 2005;

Ranbaxy made joint venture with Nippon Chemiphar in Japan (known as Nihon Pharmaceuticals Industries Ltd.). This joint venture launched the first product Vagseal for Diabetes.

IN 2008;

It redefined it’s business model and bring Daiichi Sankyo as a majority partner to create strategic combination of an innovator and Generic power house.

IN 2009;

Daiichi Sankyo and Ranbaxy announced reconstitution of Ranbaxy executive leadership.


COMPANY NAME:DAIICHI SANKYO COMPANY, LIMITED.

NATURE OF ENTERPRISE:

Research & Development, Manufacturing , Import, and Sales & Marketing of pharmaceutical products.

HEAD OFFICE ADDRESS:

3-5-1, Nihonbashi-honcho, Chuo-ku, Tokyo103-8426, Japan.Phone:+81-3-6225-1111.

BOARD OF DIRECTORS:


Representative Director and Chairman: Mr. Kiyoshi Morita.

Representative Director and President&CEO: Mr.Takashi Shoda.

Executive Directors:

Mr.Ryuzo Takada.

Mr. Hitoshi Matsuda .

Mr.Tsutomu Une .

Mr.Takeshi Ogita.

Outside Directors: Mr. Kunio Nihira .

Mr.Yoshifumi Nishikawa.

Mr.Jotaro Yabe .

Mr.Takashi Okimoto.

AUDITORS:

Internal: Teruo Takayanagi & Hikaru Nagata.

External: Kaoru Shimada & Koukei Higuchi.

WOKFORCE:

28,895 people. (consolidated as on 31st march 2009.)


MISSION:

VISSION:

DAIICHI SANKYO Group aims for the realization of the Global Pharma Innovator in 2015. “Global” means the international scope of corporate activities. “Pharma Innovator” means a company that continuously develops innovative drugs

VALUES:

●Social value Fulfill the responsibility as a member of society by performing duties. Contribute to society through activities such as the active consideration of the

environment, support of community development, and efforts to help solve problems faced by community.

●Economic value Become a company that grows robustly, creating special values and premiums.

●Humanistic value Become a company whose members are qualified professionals who work all over the

world. Provide motivating jobs, setting equal opportunities to perform, supporting career

development, and rewarding our staff according to their jobs and performance


COMPANY NAME:RANBAXY LABORATORIES LIMITED.

NATURE OF ENTERPRISE:

Research & Development, Manufacturing , Import, and Sales & Marketing of pharmaceutical products (mainly generic products).

HEAD OFFICE ADDRESS:

PLOT NO- 90, SECTOR 32,Gurgaon, 122001,

Haryana, India.

BOARD OF DIRECTORS:

Mr. Atul Sobti Chief Executive Officer & Managing Director

Mr. Takashi Shoda Non Executive &Non Independent

Director


http://www.ranbaxy.com/AboutUs/Executiveteam_dispnew.aspx?id=68&flag=





Dr. Tsutomu Une Chairman

Non Executive & Non Independent

Director

Dr. Anthony H. Wild Independent Director

Mr. Rajesh V. Shah Independent Director

Mr. Akihiro Watanabe

Independent Director

MISSION: To become a research based pharmaceutical company.

VALUES:

Achieve customer satisfaction is fundamental to the business. Provides products and services of the highest quality. Ensure profitable growth & enhance wealth of shareholders. Be a responsible corporate citizen.










VISION 2012: B CVHCVDDVV

Achieve significant business in proprietary prescription products by 2012 with a strong presence in developed market.

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

(i) 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.

(ii) 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.

(iii)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.


(iv) 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.

RANBAXY LABORATORIES LTD. (Last 10 years).


DAIICHI SANKYO COMPANY LTD.

(Consolidated Balance Sheets,2008 & 2009) ( (Millions of yen) As of March 31, 2008 As of March 31, 2009ASSETS:


Current assets:Cash and time deposits 47,335 76,551Trade notes and accounts receivable 166,980 195,512Marketable securities 526,805 235,475Inventories 98,158 –Merchandise and finished goods – 93,502Work in process – 14,496Raw materials and supplies – 31,477Deferred tax assets 52,677 76,747Other current assets 34,860 60,761Allowance for doubtful accounts (293) (1,018)Total current assets 926,524 783,506

Non-current assets:Property, plant and equipmentBuildings and structures, net 136,821 132,732Machinery, equipment and vehicles, net 33,150 46,038Land 33,116 42,358Construction in progress 2,937 13,315Other, net 15,239 15,669Net property, plant and equipment 221,266 250,113

Intangible assets:Goodwill, net 15,403 77,380Other intangible assets, net 75,667 115,180Total intangible assets 91,070 192,560

Investments and other assetsInvestment securities 216,038 153,727Long-term loans 1,304 614Prepaid pension costs 8,023 6,920Deferred tax assets 5,995 91,600Other 18,018 15,864Allowance for doubtful accounts (352) (309)Total investments and other assets 249,028 268,418Total non-current assets 561,364 711,093

Total assets 1,487,888 1,494,599

(Millions of yen) As of March 31, 2008 As of March 31, 2009LIABILITIES


Current liabilitiesTrade notes and accounts payable 46,405 59,419Short-term bank loans 68 264,345Income taxes payable 18,682 8,243Allowance for sales returns 754 589Allowance for sales rebates 776 2,666Allowance for contingent losses 226 –Other current liabilities 127,599 173,271Total current liabilities (a) 194,514 508,535

Long-term liabilitiesConvertible bond-type bonds with subscription Rights to shares – 47,082Long-term debt 18 15,852Deferred tax liabilities 26,724 5,427Accrued employees’ severance and retirement benefits 6,781 10,589Accrued directors’ severance and retirement benefits 115 177Provision for environmental measures 1,057 92Other long-term liabilities 14,165 18,224Total long-term liabilities (b) 48,862 97,447Total liabilities (a*b) 243,376 605,982

NET ASSETSShareholders' equityCommon stock 50,000 50,000Capital surplus 179,863 105,194Retained earnings 1,025,144 753,820Treasury stock at cost (43,407) (14,555)Total shareholders' equity 1,211,600 894,459Valuation and translation adjustmentsNet unrealized gain on investment securities 48,539 19,882Deferred gains or losses on hedges – 76Foreign currency translation adjustments (16,263) (51,367)Total valuation and translation adjustments 32,276 (31,408)Subscription rights to shares 257 2,390Minority interests 377 23,175Total net assets 1,244,512 888,617

Total liabilities and net assets 1,487,888 1,494,599


RANK NAME OF THE COMPANY

TOTAL REVENUE

(USD millions)

R&D(USD

millions)

1 PFIZER (U.S.) 70,696 11,318

2 JHONSON &JHONSON (U.S.) 63,747 N.A.

3 BAYER (GERMANY) 48,149 3,770

4 HOFFMAN-LA ROCHE (SWIS) 43,970 2,348

5 NOVARTIS (SWIS) 41,460 3,221

20 DAIICHI SANKYO CO.LTD.(JAPAN) 9,682 1,459

(AS YEAR ENDING 31ST MARCH 2008.WIKIPEDIA.COM)


RANK NAME OF THE COMPANY %Of Total

market acquired

1 RANBAXY LABORATORIES LTD. 5.12

2 CIPLA PHRMA.LTD. 5.02

3 GLAXO SMITH KLINE (INDIA) 4.08

4 PIRAMAL HEALTH CARE 3.37

5 ZYDUS CADILA 3.08

OTHERS 79.03

(AS YEAR ENDING ON 31ST MARCH,2008.WIKIPEDIA.COM)


It is often said that the pharma sector has no cyclical factor attached to it. Irrespective

of whether the economy is in a downturn or in an upturn, the general belief is that demand for drugs is

likely to grow steadily over the long-term. True in some sense. But are there risks? This article gives a

perspective of the Indian pharma industry by carrying out a SWOT analysis (Strength, Weakness,

Opportunity, Threat).

Before we start the analysis lets look a little back in the industry’s last six years performance. The

Industry is a largely fragmented and highly competitive with a large number of players having interest

in it. The following chart shows the breakup of the growth (YoY) of Indian pharmaceutical industry in

last six years.

*Volume growth of existing products

The SWOT analysis of the industry reveals the position of the Indian pharma industry in respect to its

internal and external environment.

Strengths:

1. Indian with a population of over a billion is a largely untapped market. In fact the penetration

of modern medicine is less than 30% in India. To put things in perspective, per capita

expenditure on health care in India is US$ 93 while the same for countries like Brazil is US$

453 and Malaysia US$189.

2. The growth of middle class in the country has resulted in fast changing lifestyles in urban and

to some extent rural centers. This opens a huge market for lifestyle drugs, which has a very

low contribution in the Indian markets.

3. Indian manufacturers are one of the lowest cost producers of drugs in the world. With a

scalable labor force, Indian manufactures can produce drugs at 40% to 50% of the cost to the

rest of the world. In some cases, this cost is as low as 90%.


4. Indian pharmaceutical industry posses excellent chemistry and process reengineering skills.

This adds to the competitive advantage of the Indian companies. The strength in chemistry

skill help Indian companies to develop processes, which are cost effective.

Weakness:

1. The Indian pharma companies are marred by the price regulation. Over a period of time, this

regulation has reduced the pricing ability of companies. The NPPA (National Pharma Pricing

Authority), which is the authority to decide the various pricing parameters, sets prices of

different drugs, which leads to lower profitability for the companies. The companies, which are

lowest cost producers, are at advantage while those who cannot produce have either to stop

production or bear losses.

2. Indian pharma sector has been marred by lack of product patent, which prevents global

pharma companies to introduce new drugs in the country and discourages innovation and

drug discovery. But this has provided an upper hand to the Indian pharma companies.

3. Indian pharma market is one of the least penetrated in the world. However, growth has been

slow to come by. As a result, Indian majors are relying on exports for growth. To put things in

to perspective, India accounts for almost 16% of the world population while the total size of

industry is just 1% of the global pharma industry.

4. Due to very low barriers to entry, Indian pharma industry is highly fragmented with about 300

large manufacturing units and about 18,000 small units spread across the country. This

makes Indian pharma market increasingly competitive. The industry witnesses price

competition, which reduces the growth of the industry in value term. To put things in

perspective, in the year 2003, the industry actually grew by 10.4% but due to price

competition, the growth in value terms was 8.2% (prices actually declined by 2.2%) .

Opportunities

1. The migration into a product patent based regime is likely to transform industry fortunes in the

long term. The new patent product regime will bring with it new innovative drugs. This will

increase the profitability of MNC pharma companies and will force domestic pharma

companies to focus more on R&D. This migration could result in consolidation as well. Very

small players may not be able to cope up with the challenging environment and may succumb

to giants.


2. Large number of drugs going off-patent in Europe and in the US between 2005 to 2009 offers

a big opportunity for the Indian companies to capture this market. Since generic drugs are

commodities by nature, Indian producers have the competitive advantage, as they are the

lowest cost producers of drugs in the world.

3. Opening up of health insurance sector and the expected growth in per capita income are key

growth drivers from a long-term perspective. This leads to the expansion of healthcare

industry of which pharma industry is an integral part.

4. Being the lowest cost producer combined with FDA approved plants, Indian companies can

become a global outsourcing hub for pharmaceutical products.

Threats:

1. There are certain concerns over the patent regime regarding its current structure. It might be

possible that the new government may change certain provisions of the patent act formulated

by the preceding government.

2. Threats from other low cost countries like China and Israel exist. However, on the quality

front, India is better placed relative to China. So, differentiation in the contract manufacturing

side may wane.

3. The short-term threat for the pharma industry is the uncertainty regarding the implementation

of VAT. Though this is likely to have a negative impact in the short-term, the implications over

the long-term are positive for the industry.

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.

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 create lots question. But they could sold portion of them , so that the 54 years experienced will with Ranbaxy .


Ranbaxy laboratories ltd. (which is 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 dieses.

In last ,we all thankful to our dear mam Mrs.Puja Bhatt who provide us the opportunity to do a project on collective efforts. Such task provide us a corporate experience to achieve our common goals.


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Report on Acquisition of Ranbaxy