Sun Pharma is selling its expensive stock valued at 10x revenues to shareholders of Ranbaxy to buy the company at 2.2x revenues. Daiichi Sankyo has destroyed shareholder value by buying Ranbaxy at Rs 737 in 2008 at 5x revenues and selling it to Sun Pharma at Rs 457 in 2014 at 2.2x revenues a loss of 38%.
Daiichi Sankyo made the promoters of Ranbaxy rich by buying expensive, destroyed minority shareholders value of Ranbaxy, destroyed value for their own shareholders due to the loss in buying and selling Ranbaxy and is now giving Sun Pharma shareholders a sweet deal.
Sun Pharma will benefit from the purchase of Ranbaxy at the cost of Ranbaxy minority shareholders.
In November 2008, Japanese pharmaceutical company Daiichi Sankyo had acquired 63.92% stake in Ranbaxy laboratories for USD 4.6 billion. Daiichi bought the stake at Rs 737 per share.
On 7th April 2014, Sun Pharma announced in its press release said that the company is going to acquire 100% of Ranbaxy Laboratories Ltd. in an all-stock transaction for USD 4 billion. Ranbaxy has a debt of USD 0.8 billion. Post the completion of the deal Daiichi Sankyo will become the second largest shareholder in the company.
The deal will create the fifth-largest specialty 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 5 continents, and a significant platform of specialty and generic products marketed globally, including 629 ANDAs.
On a pro forma basis, the combined entity’s revenues are estimated at USD 4.2 billion with EBITDA of USD 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. Sun Pharma is valued at 10x of revenues.
Under the agreements, Ranbaxy shareholders will receive 0.8 shares 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% to Ranbaxy’s 30-day volume-weighted average share price and a premium of 24.3% to Ranbaxy’s 60-day volume-weighted average share price, in each case, as of the close of business on April 4, 2014.The transaction has a total equity value of approximately USD 3.2 billion.