Sun Pharma-Ranbaxy deal: Proxy advisory firm questions Ranbaxy share trading surge

Volumes tripled in 3 days before deal and stock was up 24%, notes IiAS

A proxy advisory firm has raised questions over a rise in the share price and traded volumes in the stock of Ranbaxy Laboratories, ahead of the announcement of its acquisition by Sun Pharmaceutical Industries in a multi-billion dollar deal.

Amit Tandon, founder and managing director of Institutional Investor Advisory Services India Ltd, said the spike in both price and volumes just ahead of the deal announcement raises questions. Delivery on the National Stock Exchange was only 12 per cent of traded volume, according to his analysis, suggesting an increase in short-term speculative activity ahead of the announcement. "The news may have leaked and this needs greater scrutiny,” he said.

Trading in the company’s shares had more than tripled in the three days prior to the announcement, compared to the average trading volumes since January. The average value of Ranbaxy shares changing hands since the beginning of the calendar year was Rs 149.84 crore. The average over the past three days has been Rs 532.52 crore, according to an analysis by Business Standard. The share price rose nearly 24 per cent in this period, from Rs 370.7 on April 1 to Rs 459.55 on Friday. It was up nine per cent on Wednesday and rose by another 5.1 per cent on Thursday. It rose 8.2 per cent on Friday. The closing that day was less than Rs 3 from the share price in the deal. Sun’s acquisition suggests an implied share value of Rs 457 for every share of Ranbaxy. The latter shareholders will get 0.8 shares for each one they hold.

Sun acquired Ranbaxy in an all-stock deal which valued the company at $3.2 billion. The share price is at an 18 per cent premium to Ranbaxy’s 30-day volume-weighted average stock price and a 24.3 per cent to its 60-day average, stated the exchange. Both averages were calculated as of the share price ending on Friday. The deal was announced on Monday morning.

Tandon added the deal was good for shareholders, though the spike in shares and trading volumes could be examined.

The recent high for the stock was when it touched a high of Rs 483.55 on January 6, highest in over a year. Speculation over the deal was ongoing for a few months, say market sources.

An email to the company did not get a reply.