A generic misadventure

Daiichi Sankyo scrubs out Indian M&A nightmare

Daiichi Sankyo has emerged from a long spell of infirmity in India with its financial faculties just about intact. The Japanese group's 2008 purchase of a stake in local drugmaker Ranbaxy was once a fable about overseas expansion gone wrong. By knowing when to quit, and riding on India's market exuberance, Daiichi has got itself to a position of being able to exit without shouldering big losses.

Daiichi paid Rs 19,800 crore for control of Ranbaxy, only for US regulators to ban products from four of the Indian company's plants. Ranbaxy had to pay a $500-million fine to US authorities after admitting to lying about safety standards. When Daiichi finally threw in the towel last April and sold its 64 per cent holding to local rival Sun Pharma, in return for a 9 per cent in the enlarged buyer, the Ranbaxy stake was valued at 40 per cent less than its original investment.

Taking shares rather than cash turned out well, thanks to an unexpected rapid rise in Sun Pharma's value. It only last month closed its acquisition of Ranbaxy after receiving the last of many approvals. There is still much to do to win back the confidence of regulators. Investors, however, seem confident that Sun Pharma can turn Ranbaxy around as it has past acquisitions. Amid a broader rally of the Indian stock market, the shares of India's largest pharma company have risen 80 per cent since the Ranbaxy deal was first announced.

Even selling its Sun Pharma shares at discount of up to 10.9 per cent to the closing price on April 20, as a term sheet shows it will, Daiichi stands to fetch Rs 20,000 crore or 1 per cent more than what it paid in 2008. True, currency moves and the time value of money mean that equates to losses in real terms. Daiichi's dealmaking record gets no clean bill of health, but the prognosis is better than it was.