CCI might ask Sun Pharma, Ranbaxy to divest products

Given their sizes and that both are competitors in diverse areas, competition watchdog indicates approval can't come soon or without conditions

Sun Pharmaceutical Industries and Ranbaxy Laboratories might have to let go some of their products to secure the competition watchdog’s approval for the proposed combination of the country’s two leading drug makers.

Competition Commission of India (CCI), which has raised concerns on the proposed merger, might direct the companies to divest some of their product portfolios wherever there is overlap and a potential threat of monopoly, a top CCI official said.

The anti-trust regulator recently wrote to the two companies, asking them to explain why there should not be an investigation into the proposed deal.

“There are concerns in this transaction as parties involved in it are two leading pharmaceutical companies in the domestic market. Our prima facie review shows the combination could have appreciable adverse affect on competition,” the official said. He added the proposed transaction can have serious implications on availability and prices of medicines.

Sun Pharma and Ranbaxy declined comment on this story. On April 6, Sun Pharma had announced it would buy Ranbaxy from Japan’s Daiichi Sankyo in an all-share deal pegged at $4 billion, including debt of $800 million on Ranbaxy’s books.

Under section 29 of the competition law, CCI may also seek comments and views from other stakeholders, including patients' groups, before clearing the proposed merger.

Industry analysts said there was likely to be significant overlap in certain segments like anti-infectives and gastro-intestinals. Market shares would be impacted in many others, too. For instance, in India, both have presence in therapeutic segments such as cardiology, analgesics, respiratory, neurology, the central nervous system and gynaecology.

The combined entity’s annual revenue is estimated at $4.2 bn. Once the deal is completed, Sun Pharma will be the largest drug maker in the domestic market, with an estimated market share of 9.2 per cent. Sales of the combined entity in India are pegged at around $1.1 bn.

Globally, the merger will create the fifth largest generic pharma company.

Beside products, Sun will acquire Ranbaxy’s huge asset base in India and in other countries. This will include Ranbaxy’s troubled manufacturing factories at Paonta Sahib (Himachal Pradesh), Dewas (Madhya Pradesh), Mohali and Toansa (Punjab), earlier supplying to the US.

Competition law experts said the CCI scrutiny of the proposed combination might take longer than usual, as it entails the public interest. Typically, CCI takes decisions related to mergers and acquisitions (M&A) within 30 days, though it can take up to 210 days of the filing of application in this regard. Sun had indicated the deal was expected to be complete by December.

Experts on competition laws say the proposed combination would be scrutinised under a Form-II filing, usually valid when two competing players are merged to form a single entity. This requires greater reporting on the proposed M&A.

“There are various complexities involved and there are concerns on competition issues. It requires close evaluation by CCI,” said M M Sharma, head of competition law and policy at Vaish Associates Advocates.

While the proposed transaction was cleared by the National Stock Exchange and BSE exchange earlier this month, it would still need approvals from the Securities and Exchange Board of India, the high courts of Gujarat and Punjab & Haryana, and creditors and shareholders of both companies, apart from CCI.

On Wednesday, shares of Sun Pharma ended at Rs 790.45, up nearly one per cent on the BSE from its previous close. Ranbaxy shares closed at Rs 586.50, down 0.6 per cent.
FINGERS CROSSED

• CCI might direct the companies to divest some of their product portfolios wherever there is overlap and a potential threat of monopoly
• Under section 29 of the competition law, CCI may also seek comments and views from other stakeholders, including patients' groups, before clearing the proposed merger
• The combined entity’s annual revenue is estimated at $4.2 bn. Once deal is done, Sun Pharma will be the largest drug maker in the domestic market, with an estimated market share of 9.2%
• Competition law experts said the CCI scrutiny of the proposed combination might take longer than usual, as it entails the public interest