India's top 10 pharmaceutical companies were Ranbaxy, Cipla, Dr. Reddy's Laboratories, Lupin, Nicolas Piramal, Aurobindo Pharma, Cadila Pharmaceuticals, Sun Pharma, Wockhardt Ltd. and Aventis Pharma.
15th Largest drug maker in the world Market Capitalization 30 Billion Low cost production
Benefits to Daichii
Strategic Advantage: The acquisition will pave the way for creating a new and complementary hybrid business model. Growth: While DIS grew at 4.7% in 2007 to $ 7.12 billion, Ranbaxy grew at over 10% to $1.6 billion. While the world pharmaceutical industry grew at 6%, the generics segment is growing at 11%. Reach: DIS would be able to extend its reach to 56 countries (especially emerging markets) from 21 countries where they currently operate.
We can safely infer from the data that, the Rs 34 billion that Ranbaxy received via fresh issue of shares to Daichii was used for purposes other than freeing up its debt.
Alternatives to Daiichi
1. Daiichi could develop sell branded generic drugs in India & other emerging markets. (like Pfizer) 2. Enter into alliances with local pharmaceutical companies. (like Pfizer and Aurobindo Pharma) 3. Sell in India drugs that are off patents globally. (like GSK) 4. Shifting from Patented to Generic Drugs & developing the generics business organically. (like GSK) 5. Acquire brands in pharmaceuticals & consumer healthcare that offer real value for money (like GSK)
Valuation of Ranbaxy
We think that Daiichi paid a substantially high price for Ranbaxy. The negotiated price of Rs 737 represented a premium of 31.4% over the market price of Ranbaxy on the day of the announcement.
Reasons for paying a high premium for acquiring Ranbaxy could be: 1. Daiichi wanted to built up its generics business quickly & therefore did not choose the organic route. 2. Daiichi thought that the synergies & benefits from the acquisition (low cost production etc.) would be worth the premium. 3. The instant access to the emerging markets that the acquisition provided would be well worth the premium.
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