Sun Pharma to buy Ranbaxy for $4 billion in all-share deal

India's largest drugmaker by market capitalisation Sun Pharma will buy out Japan's Daiichi-controlled Ranbaxy Laboratories for $4 billion in an all-share deal, the two companies said Monday.

The combined entity will create the world's fifth largest speciality generic pharma company.

According to a joint statement issued by the two companies, Sun Pharma will acquire 100 percent of Ranbaxy in an all-stock transaction. Ranbaxy is 63.4 percent owned by Japan's Daiichi Sankyo.

Under these agreements, shareholders of Ranbaxy, India's biggest drugmaker by sales, will receive 0.8 share of Sun Pharma for each share of Ranbaxy.

This exchange ratio represents an implied value of Rs.457 for each Ranbaxy share, a premium of 18 percent to Ranbaxy's 30-day volume-weighted average share price and a premium of 24.3 percent to Ranbaxy's 60-day volume-weighted average share price, in each case, as of the close of business April 4, 2014.

"Ranbaxy has a significant presence in the Indian pharma market and in the US where it offers a broad portfolio of ANDAs and first-to-file opportunities. In high-growth emerging markets, it provides a strong platform which is highly complementary to Sun Pharma's strengths," said Dilip Shanghvi, managing director of Sun Pharma.

"We see tremendous growth opportunities and are excited with the prospects to create lasting value for both our shareholders through a successful combination of our franchises," Shanghvi added.

The combination of Sun Pharma and Ranbaxy creates the fifth-largest speciality generics company in the world and the largest pharmaceutical company in India.

The combined entity will have operations in 65 countries, 47 manufacturing facilities across five continents, and a significant platform of specialty and generic products marketed globally, including 629 abbreviated new drug applications (ANDAs).

On a pro forma basis, the combined entity's revenues are estimated at $4.2 billion with earnings before interest, taxes, depreciation and amortisation (EBITDA) of $1.2 billion for the twelve month period ended December 31, 2013.

The transaction value implies a revenue multiple of 2.2 based on 12 months ended December 31, 2013.

"We believe this transaction brings significant value to all Ranbaxy shareholders. Sun Pharma has a proven track record of creating significant long-term shareholder value and successfully integrating acquisitions into its growing portfolio of assets," said Arun Sahwney, managing director and chief executive officer of Ranbaxy.

"We are confident that Sun Pharma is the ideal partner to help us realize our full potential and are excited to participate in future value creation opportunities," said Sahwney.

The proposed transaction has been unanimously approved by the boards of directors of Sun Pharma, Ranbaxy, and Ranbaxy's controlling shareholder, Daiichi Sankyo. Ranbaxy's board and Sun Pharma's board have recommended approval of the transaction to their respective shareholders, the statement said.