Troubled Ranbaxy to be acquired by Sun Pharma for around $4 billion

In something of a surprise announcement, Sun Pharmaceutical Industries (BSE: 524715) revealed this morning that it has entered into a definitive agreement to acquire fellow Indian drugmaker Ranbaxy Laboratories (BSE: 500359) in an all-stock transaction.

Sun Pharma noted that pending regulatory approvals, the transaction, which is valued at $4 billion including the assumption of debt ($3.2 billion net), is expected to close by the end of 2014. The deal has been approved by both companies’ boards of directors and Japan’s Daiichi Sankyo (TYO: 4568), which has a controlling 63.4% stake in Ranbaxy. Pursuant to the merger, Daiichi Sankyo will receive a stake of about 9% in the expanded Sun Pharma, and will have the right to nominate one director to Sun Pharma’s board of directors. Daiichi acquired its stake in Ranbaxy in 2008 for a transaction cost of between $3.4 billion and $4.6 billion (The Pharma Letter June 16, 2008).

Under the agreed terms, Ranbaxy shareholders will receive 0.8 shares of Sun Pharma for each share they currently hold. The companies noted that the exchange ratio represents a value of 457 rupees ($7.60) for each Ranbaxy share, a premium of 24.3% to the company's 60-day average share price.