Daiichi to exit Sun Pharma

As part of its strategy to exit India, Japanese pharmaceuticals company Daiichi Sankyo will sell its 8.9 per cent stake in Sun Pharmaceuticals, worth Rs 22,610 crore, in block deals in the stock market on Tuesday.

Sun Pharmaceuticals’ promoter, managing director and chief executive officer, Dilip Shanghvi, was expected to buy some of the shares on sale and increase his stake in the company, said bankers close to the deal.

Daiichi will sell the shares in a band of Rs 932-1,043, a 10.9 per cent discount to Sun Pharmaceuticals’ closing price of Rs 1,044 on Monday. At this price, the 215 million shares owned by Daiichi will fetch $3.18-3.5 billion.

DAIICHI’S INDIA PLAY

JUNE 2008: Daiichi acquires Ranbaxy for $4.6 bn in a cash deal MAY 2013: Ranbaxy agrees to pay $500 mn as fine to the US Food and Drug Administration APRIL 2014: Sun Pharma acquires Ranbaxy for $4 bn in an all-stock deal APRIL 2015: Daiichi to sell 8.9% stake in Sun Pharma for up to $3.5 bn

Goldman Sachs is the banker to the transaction.

As of Monday, Sun Pharmaceuticals’ market capitalisation was Rs 2,51,216 crore.

It is expected a swarm of institutional investors will buy the shares on offer. The Shanghvi family is likely to buy shares to increase its stake in the company, which fell to 54 per cent from 64 per cent after Sun Pharmaceuticals’ merger with Ranbaxy. “Shanghvi is keen to increase his stake, as he wants to increase Sun’s footprint across the world through acquisitions. A big personal stake will help in future stock deals,” said a banker.

In the past three months, the Sun Pharmaceuticals stock had risen 20 per cent, providing Daiichi a window for exit, said a banker close to the transaction. In the past year, the stock rose 68 per cent, making the Ranbaxy merger a success for Daiichi.

Daiichi acquired stake in Sun Pharmaceuticals after Shanghvi acquired Ranbaxy in an all-stock deal last April.

In a statement on Monday, Daiichi Sankyo said it would not be a major shareholder in Sun Pharma, though its existing business partnership with the Indian firm would remain. “On April 20, the board of directors of Daiichi Sankyo approved a resolution to sell entire or part of its holding of Sun Pharmaceutical shares,” the Japanese firm said. After the sale, Daiichi Sankyo wouldn’t be a major shareholder of Sun Pharma, it added.

In 2008, Daiichi bought Ranbaxy from Malvinder and Shivinder Singh for $4.6 billion. The acquisition did not go well, as Ranbaxy was found guilty of numerous violations of US Food and Drug Administration (FDA) rules. The company paid a penalty to the FDA to settle the matter and the value of Daiichi’s stake fell about half.

The FDA, in 2008, banned Ranbaxy from selling 30 drugs in the US due to manufacturing deficiencies at its two facilities in India. The next year, the FDA accused the company of falsifying test results in drug applications and halted reviews of drugs made at a plant in Himachal Pradesh.

Ranbaxy pleaded guilty to charges relating to the manufacture and distribution of adulterated drugs at its two Indian plants in May 2013.

As settlement, the US subsidiary of Ranbaxy paid $500 million to US authorities.

Daiichi agreed to merge Ranbaxy with Sun Pharmaceuticals in an all-stock deal worth $4 billion, which included Ranbaxy's debt of $800 million, in April 2014. The merger made Sun Pharmaceuticals the world's fifth-largest speciality generic drugs company and the biggest Indian drug company, with a significant lead in market share.

At a news conference, Shanghvi said the merged company would focus on gaining the trust of regulators globally and continue to develop drugs based on patients' needs.