Business Today

Malvinder's sweet deal

By selling out to Daiichi Sankyo, the CEO& MD of Ranbaxy hasn’t just netted a Rs 9,576-crore windfall, but brightened the company's future sans him in the global generics' marketplace. A report by Business Today's Shalini S. Dagar.

Shalini S. Dagar | Print Edition: July 13, 2008

It is the Saturday after Japan’s second-largest drug maker, Daiichi Sankyo Co (DS), stunned corporate India by announcing the takeover of India’s largest and iconic pharma company, Ranbaxy Laboratories, and this writer and her colleague are waiting in the lobby of the company’s Gurgaon headquarters ahead of a meeting with Malvinder Singh.

Ranbaxy’s Malvinder Singh: He has read the writing on the wall ahead of other Indian drug makers
Malvinder Singh
Ranbaxy’s CEO& MD has, of course, done the unthinkable (for most Indian promoters at least) by selling his family’s flagship business. Singh draws up at the entrance to the building in his S-class Mercedes-Benz. He’s on his cellphone, and arriving into the building lobby, ducks into an adjoining conference room to finish the call.

Minutes later, he’s out, only to catch one of us using a folded paper sheet as a fan to stay cool in the lobby’s oppressive heat. “Why isn’t the air-conditioner on?” he asks a member of his PR team. “The Japanese ordered it shut, cost cutting already” we joke, before his PR manager can reply. “Around here, I still call the shots,” Singh snaps back.

Takashi Shoda, President & CEO, Daiichi Sankyo
Takashi Shoda
That may be so for now—and maybe a little more time. Singh, however, insists that it is business as usual apart from the stake sale. “I am not going anywhere. Ranbaxy will continue to be a listed and independent company with full autonomy and decision making in India,” he says. He becomes Chairman of Ranbaxy in addition to CEO & MD. Singh and his family (mainly brother Shivinder) sold their stake (34.8 per cent) in the company for a cool Rs 9,576 crore. Daiichi Sankyo will pick up additional stake to take its holding beyond 50 per cent (See What Daiichi Pays). So, life has certainly changed at Ranbaxy, which has clawed its way up through highrisk, high-return litigations over patented drugs with innovator pharma companies to become one of the top 10 global generics players.

 What Daiichi pays…

Rs 737 per share in four separate transactions. Total purchase price works to between Rs 14,700 crore and Rs 19,800 crore (or JPY 369-495 billion).

However, the world has changed. “In the last two years or so, the global pharma value chain has broken down,” says Singh. If innovator companies are under pressure to reduce costs of drug discovery and seek additional sales in emerging markets, generic producers such as Ranbaxy need size, scale and new drugs to sustain themselves. Apart from the rising heat in the global market place, for Singh and his family, it became a little complicated due to a string of acquisitions that Singh pulled off in the last two odd years. Revenue growth notwithstanding, the leverage too increased. In fact, Ranbaxy had a debt of Rs 3,503 crore on its balance sheet in 2007, thanks mainly to the acquisitions (BT learns that the promoters themselves may have taken on some personal debt in the process). Stock markets remained unimpressed, with the share price languishing around Rs 450 over the past few quarters. With the redemption of the foreign currency convertible bonds around the corner at around Rs 550 per share, there were no easy options. Price erosion in key overseas markets like the US may have strengthened the Singh family’s resolve to cash out before it got worse. And the Japanese were offering a good price.

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