Sun-Ranbaxy deal: CCI nod likely this week with brand dilution rider

Regulatory nod for the deal, which is valued at $4 billion, is also awaited from America's Federal Trade Commission

The Competition Commission of India (CCI) is expected to come out with its decision on the merger of Sun Pharma and Ranbaxy this week.

CCI officials had earlier indicated a decision was likely by the end of November. It has been delayed, triggering apprehension over the deal facing a hurdle. However, sources said a conditional nod was on its way.

Regulatory approval is yet to come from the US Federal Trade Commission, too, for the $4 billion merger, the biggest deal in the pharmaceuticals industry in the Asia Pacific this year.

In the backdrop of speculation on the possibility of competition watchdog rejecting the merger deal, Sun Pharma came out with a statement late evening. Sun spokesperson said the company had neither received any final order from Competition Commission of India (CCI) on the transaction, nor had there been any rejection of the deal.

“CCI has been seeking additional information and detailed clarifications with respect to specific aspects of the products for the purpose of making its assessment. We see the process nearing its logical closure,’’ the Sun spokesperson said. He added that the company was happy with the open and transparent manner in which the matter had progressed. ‘’It is our intent to fully comply with all the regulatory requirements as required to close the transaction.”    

CCI chairman Ashok Chawla was not available for comments. Sun Pharma has  indicated the merger process could spill over to 2015.

“I think, some structural remedies might be offered to both the companies by the CCI since there could be some overlap between Sun Pharma and Ranbaxy. They would need to address that," said Amitabh Kumar of J Sagar Associates. One of the companies or both may be told to sell some of their brands so that the deal is not deemed monopolistic.

CCI gives its decision within 210 days of a case landing up at its door.

“Till date, clearances have been obtained from stock exchanges in India, from shareholders and competition authorities in all applicable markets, excluding India and USA. We are expecting to have the pending approvals by December 2014, but there could be minor delays if the approvals do not come by the end of December 2014,” Sun Pharma’s management had said after announcing last quarter’s results.

The Foreign Investment Promotion Board has approved the merger, following which the Ranbaxy and Sun Pharma scrips rose on BSE on Monday. After close of trading, Sun Pharma settled at Rs 835.25, down 0.5 per cent, while Ranbaxy settled 0.7 per cent higher at Rs 616.9.

The deal announced in April is a rare purchase of a local rival by a leading Indian drug company.The buyout is valued at $3.2 billion, but Sun Pharma will also acquire Ranbaxy’s debt of around $800 million, taking the transaction to $4 billion.

Both companies are likely to be advised to sell some of their businesses or brands before CCI approves their merger. It has written to Ranbaxy and Sun Pharma suggesting changes to get the deal going. CCI  began public scrutiny of the deal on August 27, following concerns that the presence of the two companies in key drug segments could lead to monopoly pricing. Consumer forums have argued the merger could stifle competition.

Industry analysts said there was likely to be significant overlap in Ranbaxy's and Sun Pharma's anti-infective and gastro-intestinal drug businesses. Market shares would also be affected in other therapeutic segments like cardiology, analgesics, respiratory, neurology, the central nervous system and gynaecology.

Sun Pharma-Ranbaxy’s combined annual revenue is estimated at $4.2 billion. Around $1.1 billion of that comes from sales in India. Once the deal is done, Sun Pharma will be the largest drug maker in the country with a market share of 9.2 per cent. The merger will create the fifth largest generic drug company in the world.

Sun Pharma will also acquire Ranbaxy's assets in India and in other countries. These include Ranbaxy's factories at Paonta Sahib (Himachal Pradesh), Dewas (Madhya Pradesh), Mohali and Toansa (Punjab) that were earlier supplying drugs to the US.