Ranbaxy promoters does an unthinkable act!!

The promoters of Ranbaxy Labs have done an unthinkable act in the history of Corporate India by selling out their 34.8% stake in Ranbaxy at a price of Rs737/- per share to Daiichi Sankyo, a Japanese pharma company. for Rs10,000 crores. In order to further increase its stake to 50.1%, Daiichi Sankyo would be issued equity shares and convertible warrants on a preferential basis and also make an open offer to the existing public shareholders of Ranbaxy for an additional 20% stake at a price of Rs737 per share. At the price of Rs737/- per share, Ranbaxy is valued at USD8.5 billions.

The Japanese company, after acquiring the stake from Ranbaxy promoters would further make an open offer to the share holders for acquiring additional 20% of the share capital. The combined entity of Daiichi Sankyo and Ranbaxy would be the world's 15th largest Pharmaceutical company.

Mr Malvinder Singh will continue to lead the company as its CEO and Managing Director while additionally assuming the position of Chairman of the Board, upon closure.

Sharekhan in its research report yesterday as written that " The open offer price of Rs737 per share represents a premium of 31.4% to Ranbaxy's closing stock price on June 10, 2008, a 53.5% premium to Ranbaxy's average daily closing price for the three months ending on June 10, 2008 and an 18% premium to Ranbaxy's fair price of Rs625 per share. The open offer price is attractively priced and presents an attractive exit option for investors. However, the acceptance ratio in the open offer works out to just ~34% taking into account the free float of 58.9% (on the expanded equity base), which could limit the upside in the short term. Moreover, the complete exit of promoters has come as a surprise and could possibly act as a drag on the stock sentimentally.

For investors with a long-term investment horizon, at the current levels the effective purchase price would amount to ~Rs469 per share considering the possibility of tendering ~34% of the shares in the open offer at a price of Rs737 per share. This price would be at 26.2x CY2008 fully diluted earnings and at 14.7x CY2009 fully diluted earnings".


What would Ranbaxy promoters do with the money?

Malvinder Singh in his interview to Economic Times has stated that he along with his brother Shivinder and Sunil Godhwani of Religare Securities would decide on the future course of action for the Ranbaxy group.

We think that the focus would shift to Fortis Healthcare and Religare, Ranbaxy group listed companies. There can be more buy-outs in the health-care space. Already few months back, Fortis Healthcare bought out the promoters stake in Malar Hospitals, Chennai.

Religare is already on a roll. It has already got a license to float a mutual fund company in association with Aegon. Senior level recruitments have already started in this company. They want build the Religare brand and have a presence in the entire spectrum of financial services. With the banking sector opening up in 2009, Ranbaxy promoters would have possibly felt that more can be done on the financial services industry and for that matter they have already created a war-chest of Rs10,000 crores.


It is very rare to see promoters selling off their entire stake in a profitably running Indian company with global operations. It sounds like the promoters want to get out of the business when the going is good.