Finally, Ranbaxy becomes part of Daiichi Sankyo

Japanese drug major Daiichi Sankyo today completed its acquisition of a 52.5 per cent equity stake in India's Ranbaxy Laboratories through off-market and stock exchange transactions.

With this, India's largest drug-maker, which inspired many of the country's pharmaceutical companies to go global in the past decade, has become a subsidiary of the Tokyo-headquartered firm. The deal, announced this June, is worth Rs 19,850 crore and gives Daiichi access to Ranbaxy's expertise in generic drug-making.

While 22 per cent of the promoters' stake in Ranbaxy was sold through an off-market transaction, the remaining came from a preferential share allotment approved by the Ranbaxy board today. Daiichi-Sankyo had earlier picked up more than 20 per cent of Ranbaxy's shares through an open offer.

Ranbaxy Chairman and Managing Director Malvinder Mohan Singh said the remaining 12-13 per cent promoter shareholding will also change hands in the coming weeks, thereby taking Daiichi's share in the company to over 60 per cent.

The Indian pharma firm had to choose the off-market route after the company's attempt to sell its shares through a block deal at a pre-determined price of Rs 737 per share was not approved by the Securities and Exchange Board of India (Sebi) last week. This will make the promoter family pay taxes to the tune of about Rs 1,000 crore.

"We are evaluating the tax liability arising out of the transaction and the promoter family will pay the taxes required under the law", said Malvinder.

The Sebi regulations say that a block deal must be done at a price which is close to the existing market price and between 9.55 am and 10.30 am on a trading day. The current share price of Ranbaxy is Rs 261.7, way below the deal price.

The off-market route will now attract a capital gains tax to the money earned by the promoters. As compared to this, a stock market deal would have costed Ranbaxy promoters only a nominal securities transaction tax of 0.125 per cent in addition to the broker's fee and a 12.5 per cent service tax (on the broker's fee). The off-market deal attracts a 10 per cent long-term capital gains tax in addition to 1 per cent surcharge and an additional 3 per cent tax on the surcharge. If the company goes for an indexation route, the capital gain tax would be even more at 20 per cent.