Ranbaxy Daiichi

Ranbaxy – Daiichi Sankyo Deal Akash Bangani Dipika Bhura Gaurav Khetan Neetu Rathod 12065 12077 12082 12118 Agenda • • • • • • • • • • Industry Overview Companies’ Profiles Snapshot of the deal Financing the deal Benefits to Daiichi Benefits to Ranbaxy Synergies Post Acquisition challenges Recent Developments Conclusion Indian Pharmaceutical Industry • Present size of $14 billion. • Ranks 4th in world in terms of production and 13th in terms of consumption. • Highly fragmented. 325 large and medium-scale companies and 26000 small-scale companies. Can be divided in 2 segments – Formulation and Bulk Drugs Market Share of segments 20% 80% Formulations Bulk Drugs Porter’s 5 forces Threat of Entry: MODERATE Competition: HIGH Porter’s 5 forces Model Threat of substitute: LOW Bargaining power of customers: MODERATE Bargaining power of suppliers: LOW Company Profile: Ranbaxy • Incorporated in 1961. • The largest pharmaceutical company in India and among the top 100 pharmaceuticals companies in the world. • Ranked 8th largest generic drug company in the world. • Ground operations in 49 countries and manufacturing operations in 11 countries. Exports contribute to around 80% of total revenues. • 2008-Global Sales of US $ 1,682 Million Market Reach & structure: Ranbaxy Shareholding before Deal Revenue Diversification REGION North America Europe SHARE 26% 23% Category Promoters Domestic Institutions FII’s Holding 34. 8% 23. 3% 18% India Emerging Markets Developed Markets 21% 54% 40% Shareholding after Deal Category Daiichi Sankyo Rest Holding 64% 36% Others 6% About Daiichi - Sankyo • Established in 2005 , after the merger of two leading companies in Japan- Sankyo Company Ltd. & Daiichi Pharmaceutical Company Ltd. Proprietary researched based pharmaceutical company. • Sales Splits: Japan – 68% North America – 20% Europe – 9% Other – 3% Daiichi – Sankyo (Current Data) Snapshot of the deal • On June 11, 2008 Daiichi agreed to pay $4. 6 billion for acquiring 51% stake in Ranbaxy putting the total enterprise value of Ranbaxy at $8. 5 billion. • Deal financing through a mix of debt and existing cash resources of Daiichi Sankyo. • The purchase price of Rs. 737 represents a premium of above 50% to Ranbaxy’s average daily closing price on the National Stock Exchange. Deal would make the combined entity 15th largest pharmaceutical company in the world. Acquisition of Shares Date of Acquisition Oct 15th 2008 Oct 20th 2008 Oct 20th 2008 Particulars Open offer Preferential Share Promoters No. of Shares 92,519,126 46,258,063 81,913,234 Nov 7th 2008 Promoters TOTAL 48,020,900 268,711,323 •Issue of warrants which could be converted into equity shares between 6 to 18 months. 3000 2980 2960 Stock Price in Yen Daiichi 12th, 2980 11th, 2975 2940 2920 16th, 2945 18th, 2935 17th, 2930 13th, 2910 2900 2880 2860 9th, 2850 2840 2820 0 2 10th, 2835 4 6 8 0 Ranbaxy 610 600 590 580 Stock Price 570 560 550 540 12th, 543. 5 10th, 560. 75 11th, 560. 8 13th, 566. 9 17th, 581. 45 16th, 567. 75 18th, 598. 2 530 520 0 9th, 526. 4 2 4 6 8 10 Financing the Deal • Daiichi was to finance 50% through bank borrowings. • Less amount of debt in the Balance Sheet was an added advantage to the Co. in securing loans to fund the deal. • Remaining 50% funded through internal financial resources ? Ample liquidity to finance the deal. Total Retained Earnings= $ 10. 26 bn Marketable securities = $5. 26 bn Cash = $ 473. 35 mn & Investments = $ 2. 16 bn

As on march, 2008 Triggering Factors of the Deal • Changing dynamics of the global pharmaceutical business • Increasing population • Government’s increasing focus on Healthcare. • Patents reaching expiration • Changing consumer trends • Amendment in Patent Act, 2005 Patent Expiration worldwide What Daiichi gets from the deal • Promoters' 34. 8% stake and total of 63% stake • Ranbaxy’s world class manufacturing facilities in 14 countries. • 1100 strong R teams and 300 innovative research teams • Daiichi moves from 22nd rank to 15th among world largest pharmaceutical companies Enhancing the generic product portfolio by 20 FTF (First-toFile) product launches providing market opportunity of $26 billion. Advantages to Daiichi • Will be able to reduce its reliance on only branded drugs • Gets access to developing markets with around 60 countries. • Strengthen its base in Japanese generic market (Govt. support) • Could gain access at a lower cost to a huge number of English-speaking scientists in India • Low cost manufacturing set up Driving factors for Ranbaxy • Entry into Japanese market, world’s second largest pharmaceutical market. • Strengthened balance sheet as it would become debtfree. Huge infusion of cash • Opportunity to capitalize on Daiichi’s strength in innovation. • Opportunities for both organic & inorganic growth. • Gains access to Daiichi Sankyo’s R expertise to advance its branded drugs business. • A much larger product basket to leverage globally. Complementary business combination Synergies of Acquisitions • Manufacturing and R & D collaboration – Value Chain Activities Benefit from advanced technology coupled with low cost DIS can improve operational efficiency by sourcing APIs from Ranbaxy Reduced the impact of new Patent Act, 2005.

Product portfolio in emerging markets. • Developed clinical research environment. • • • • Benefits in value chain activities Daiichi Sankyo’s expertise Ranbaxy’s expertise Product Portfolio Daiichi - Sankyo RANBAXY Major Therapy Anti – infectives Cardiovasculars Gastrointestinals Percentage 37 16 NA Major Therapy Anti hypertensive drug Synthetic antibacterial agent Thrombiosis Diabetes Cancer Autoimmune diseases Sale Largest 2nd largest Musculoskeletal Central Vervous System Respiratory 8 6 6 Post Acquisition Financials Daiichi - Sankyo Causes of worry • FDA and DOJ probe. Lack of expertise in running a global business. • Legal Issues (Pfizer) • Economic downturn. • Cutting down of Royalty Payments Challenges • Corporate governance structure. • Implementing robust planning processes to enable the acquired entity to function optimally in the post acquisition context. • Aligning the employees to the vision of the combined entity, thus increasing employee morale and minimizing employee attrition. • Communicating to all customers and business partners especially given that a acquisition lends vulnerability to any organization from a competitive perspective. Cross Cultural issues. • There might be certain conflict of interest while taking strategic long term decisions. Challenges contd.. • Difficult to convince the doctors that the relation with the company would remain intact. • Dilute Ranbaxy’s Equity. • The currency hedges by Ranbaxy would cost the Japanese drug maker around $122 m • Ranbaxy may face problems with Daiichi’s relentless focus on quality. Recent Developments • Sep 2009: 30 drugs from 2 factories banned by FDA (loss $40 m) • May 2009: Malvinder Singh quits as CEO and MD of Ranbaxy • May 2009: Daiichi records a valuation loss of $ 3. 5 b in goodwill • April 2010: 23. 8 b warrants lapsed leading to forfeit of Rs. 1756 crores • July 2010: Ranbaxy transferred its NDDR unit to Daiichi at Rs. 145 cr thereby removing all expenses attached to R • Aug 2010: Atul Sobti quits as CEO due to difference with management. Conclusion • High premium paid • Ranbaxy's problems with the FDA highlight the potential pitfalls acquisitive companies such as Daiichi Sankyo face when shopping for deals overseas • Planning seemed less strategic and more opportunistic. • Lack of due diligence . • Inadequate cultural and operational integration. This deal has busted two myths“That innovators will never buy generics & that Indian promoters will never sell” Reference • Annual Reports of Daiichi-Sankyo and Ranbaxy • Articles from leading newspapers(Economic Times) • https://www. daiichisankyo. com/ • https://www. ranbaxy. com/ • Research Reports from Emkay Contribution • Akash: Analysis of industry & facts about the deal. • Dipika: Valuation • Gaurav: Analysis of deal fromRanbaxy’s perspective & synergies. • Neetu: Analysis of the deal from Daiichi’s perspective & Challenges Thank You

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