Sun Pharma-Ranbaxy deal may come under Sebi lens

Regulator likely to probe possible violation of insider-trading norms

The capital markets regulator, Securities and Exchange Board of India (Sebi), is likely to begin a preliminary inquiry into the $4-billion merger deal between pharma giants Sun Pharmaceutical and Ranbaxy Laboratories to check whether insider-trading norms were violated. The move follows a sharp rise in trading activity in the shares of Ranbaxy days before the deal was announced.

“The trading pattern suggests certain entities could have traded with possession of inside information on the deal. If we are able to establish a link, we will take action,” said a Sebi source.

Shares of Ranbaxy had risen nearly 24 per cent in the three sessions preceding the announcement of Sun Pharma buying Ranbaxy in an all-stock deal. The stock moved from Rs 370.70 at the close of trading on Tuesday to Rs 459.55 on Friday. The deal was announced early on Monday.

Sebi might write to Sun Pharma, Ranbaxy and other intermediaries involved in the transaction to get the names of entities in possession of ‘price-sensitive information’ on the deal, the source said.

The rally seen in the Ranbaxy shares before the deal announcement, incidentally, stopped near the deal value, signalling the market had a whiff of the valuation. The share exchange ratio for the merger gave an implied value of Rs 457 apiece to Ranbaxy shares.

An email sent to a Sebi spokesperson wasn’t immediately responded to.

Meanwhile, proxy advisory firms have said the capital markets regulator should look into all possible instances of insider trading.

“Perhaps Sebi can institute a probe into which brokers were seen buying large quantities. They can do this suo motu, even without a complaint being lodged,” said Shriram Subramanian, managing director of InGovern Research Services.

J N Gupta, founder & managing director at corporate governance firm Stakeholders Empowerment Services, said the deal could be scrutinised if there was evidence of irregularity. “It could be an issue for the regulator to examine and look into things that may have happened. A lot will depend on the regulator’s findings,” he said.