Merger of Ranbaxy and Daiichi Sankyo Co.

Ltd
Daiichi Sankyo is a global pharmaceutical company based in Japan, which delivers products and
services to more than 20 countries. In June 2008, Daiichi Sankyo reached an agreement with the
promoters of Ranbaxy Laboratories Ltd. To acquire their Singh Family) entire stake i.e. 34.8%
and another 9.4% through preferential allotment.

The valuation of Ranbaxy was done at

$8.5billion and the merged entity at approximately $30 billion.

Ranbaxys acquisition was because of its low cost manufacturing and strong distribution
network, which suited Daiichi Sankyos strategy to manufacture branded drugs. It operated in 49
countries with distribution in over 125 countries. It had an impressive sales growth of 16% in
past 5 years with major focus on anti-malaria, respiratory diseases and urology. They also had JV
with Merck, GSK to expand research capabilities in specific segments. Ranbaxy had marketing
arrangements, distribution capabilities in one of the key markets like India due to the increased
attractiveness in demographics, Healthcare industry reforms etc.

Further, Ranbaxy needed

access to the R&D know-how of Daiichi to develop their product portfolio in branded drugs and
shift away from generics.
Deal Rationale
Ranbaxys product portfolio comprised of generics and had plans to enter into branded drugs.
There were plans to enter into huge generic markets in Japan. Post-acquisition will increase cash
substantially and will make it debt free. Increased cash will aid in pursuing both organic and
inorganic growth by improving the value chain efficiency and focus on branded drugs segment.
With the increased expiries of patents, there are numerous opportunities to capitalize on them..
Further, due to increased growth of emerging markets, introduction of biosimilars, low price and
high volume etc. are the reasons to pursue this deal by Ranbaxy.
Daiichi Sankyos most important drugs Venofer and Floxin Otic is approaching the deadline for
patent protection which are the core revenue generating units. The proprietary drugs
manufacturers main focus was on efficient manufacturing methods at a large scale of nonproprietary drugs. With increases pressure from Insurance companies and paten expiries, revenue
stream depleted in proprietary drug markets. This should be supplemented with sales from the
generics which was made possible by Ranbaxy acquisition. The growth in developed markets is

saturated and the focus of global pharmaceutical companies in now shifted to emerging
economies. Daiichi and other players sees enormous potential in BRIC nations which could be
worth billions of dollars for these companies. Ranbaxys net presence in 40 countries including
Emerging markets will provide a strong leverage for Daiichi to improve market share. There is
also improvement in IPR regime of most of the countries of Asia, which is a good sign for
Daiichi to establish its proprietary drugs and also to foster innovation in the companys local
markets. The capabilities of both these players can exploit both Research & development and
sales stream to improve value generated.
Post-Merger Challenges:
The merger of a company based overseas came with own challenges. The integration process
was challenging because it required legal, resource and other considerations as envisaged earlier.
Daiichi keen interest was to introduce its important drugs in Indian markets as against global
expansion which was a second priority. The main focus was on Olmesaratan, its key product of
Daiichi. The integration process was difficult due to change in its functioning compared to
Ranbaxy. The Medical representatives were restructured, Focus was more shifted towards
enhancing operating efficiency, expansion into US and Europe to support Olmesaratan. The
merger also needed to address mechanisms to use their total intellectual capital and
manufacturing capabilities to successfully compete against Global entities entering/existent in
the market.
Although the performance of the stock has been weak due to investor perceptions regarding the
plausibility of the deal. The Ranbaxy and Daiichi Sankyo possess complementary assets which
decreases post-acquisition hurdles and increases chances of achieving the overall objective.
However, the drugs manufactured by Ranbaxy is facing a ban in the united states due to safety
concerns, which was around 15% of sales. Despite being a debt laden company with huge
litigation expenses, Ranbaxy was offered an all cash deal by Daiichi, which had its eyes on huge
generic business of India.
Indian laws governing patent protection and IPR rights vary significantly with that of other
countries which was considered during acquisition. The deal faced more issues due to different
alignment in each others objectives, limitation legally for merger integration, regulatory issues,
Operational issues etc. In the end Ranbaxy was sold to Sun Pharma group by Daiichi Sankyo.