Govt approves Daiichi Sankyo-Ranbaxy deal

New Delhi: The Government approved Daiichi Sankyo’s plan to buy a controlling stake in Ranbaxy Laboratories for up to $4.6 billion.

The Cabinet Committee on Economic Affairs (CCEA) in its meeting discussed the deal since Indian law requires Cabinet approval for any overseas investment of more than $128 million. Earlier, the Foreign Investment Promotion Board had given its approval to the deal without referring it to the CCEA.

Ranbaxy’s shares climbed 4.83 per cent to close at Rs 263.85 on the BSE. The drug maker’s shares have taken a beating since mid-September when the US Food and Drug Administration banned 30 of its generic drugs after finding serious manufacturing deficiencies at two of the company’s plants in India.

In June Ranbaxy’s promoters had announced plans to sell a 34.8 per cent stake to the Japanese company at Rs 737 a share. Tokyo-based Daiichi Sankyo also made an open offer to buy an additional 20 per cent from Ranbaxy’s shareholders at the same price to comply with listing norms in India. It will also get preferential allotments of shares and share warrants, with a goal of a minimum 50.1 per cent stake in Ranbaxy.

As part of the deal, Daiichi Sankyo will also make an open offer for 20 per cent of Zenotech Laboratories Ltd in which Ranbaxy has a 46.95 per cent stake.

Announcing the CCEA’s decision the Finance Minister, Mr P. Chidambaram, said, “Daiichi Sankyo is now free to acquire Ranbaxy. The flow of FDI as a result of acquisition of shares has been estimated at Rs 21,560 crore.” The total inflow would be more because Daiichi Sankyo is also buying 6.89 million shares of Zenotech.

The CCEA approval includes purchase of 9.25 million shares from the open offer and around 13 million shares from the promoters of Ranbaxy by Daiichi Sankyo. The company has also been allowed to subscribe 4.6 million shares and 2.3 million warrants, in addition to picking up the shares of Zenotech. Post acquisition Daiichi Sankyo will become 15th largest drug company in the world.