Daiichi Sankyo s acquisition of Ranbaxy laboratories

Abstract

On June 11 2008, Daiichi Sankyo Company (Daiichi), Japan s 3rd largest pharmaceutical company announced that it would acquire majority stake in India s largest generic drug company Ranbaxy Laboratories Limited (Ranbaxy). The deal size was valued at $4.6billion giving Ranbaxy a total enterprise valuation of $8.5billion. The combined entity post the deal would rank the 15th largest pharmaceutical company in the world with presence in 60 countries. As per the deal, the Indian promoters were selling their entire stake in the company (34.83%) and Daiichi offer price was Rs.737 per share.1 Both Daiichi and Ranbaxy were confident that this transaction would create significant long-term value for all stakeholders through complementary businesses which provide sustainable growth, an expanded global reach in both mature and emerging markets with proprietary and non-proprietary products and by optimizing usage of R and D and manufacturing facilities of both companies, especially in India1. On September 16, 2008, the US Food and Drug Administration (FDA) 2 issued warning letters to Ranbaxy, and an import alert for drugs manufactured at 2 Ranbaxy plants in India citing serious manufacturing deficiencies3. In January 2009, Daiichi wrote down a 354 billion yen ($3.84 billion) valuation loss on its acquisition of Ranbaxy. Ranbaxy share price had plummeted 66% from the acquisition price on the back of the FDA ban and the decline in the global equity markets4. The objective of this project paper is to bring to light the potential risks that Daiichi was exposed to from a business strategy standpoint at the time of due diligence and the circumstances under which Ranbaxy promoters were selling majority stake from a corporate ethic point of view.