Daiichi Sankyo scrubs out Indian M&A nightmare

April 21, 2015

By Una Galani

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Daiichi Sankyo has emerged from a long spell of infirmity in India with its financial faculties just about intact. The Japanese group’s 2008 purchase of a stake in local drugmaker Ranbaxy was once a fable about overseas expansion gone wrong. By knowing when to quit, and riding on India’s market exuberance, Daiichi has got itself to a position of being able to exit without shouldering big losses.

Daiichi paid 198 billion rupees for control of Ranbaxy, only for U.S regulators to ban products from four of the Indian company’s plants. Ranbaxy had to pay a $500 million fine to U.S. authorities after admitting to lying about safety standards. When Daiichi finally threw in the towel last April and sold its 64 percent holding to local rival Sun Pharma, in return for a 9 percent in the enlarged buyer, the Ranbaxy stake was valued at 40 percent less than its original investment.

Taking shares rather than cash turned out well, thanks to an unexpected rapid rise in Sun Pharma’s value. It only last month closed its acquisition of Ranbaxy after receiving the last of many approvals. There is still much to do to win back the confidence of regulators. Investors, however, seem confident that Sun Pharma can turn Ranbaxy around as it has past acquisitions. Amid a broader rally of the Indian stock market, the shares of India’s largest pharma company have risen 80 percent since the Ranbaxy deal was first announced.

Even selling its Sun Pharma shares at discount of up to 10.9 percent to the closing price on April 20, as a term sheet shows it will, Daiichi stands to fetch 200 billion rupees or 1 percent more than what it paid in 2008. True, currency moves and the time value of money mean that equates to losses in real terms. Daiichi’s dealmaking record gets no clean bill of health, but the prognosis is better than it was.

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