Daiichi to pay up to $4.6 billion for control of Ranbaxy

TOKYO/NEW DELHI (Reuters) – Japanese drug maker Daiichi Sankyo Co Ltd (Tokyo:4568.T – News) moved to take majority control of India’s biggest drug maker Ranbaxy Laboratories Ltd (Bombay:RANB.BO – News) in a friendly deal worth up to $4.6 billion. It represents a major foray into the high growth area of generic drugs by Daiichi Sankyo and is the latest in a string of large overseas acquisitions by Japanese drug makers.

The deal values Ranbaxy, India’s biggest drug maker and one of its largest firms, at 737 rupees per share and represents a 31.4 percent premium to its Tuesday’s closing share price.

“I like this deal very much,” said Kenji Masuzoe, senior pharmaceuticals analyst at Deutsche Securities.

“The pure pharma business model has limitations and the industry has to think about hybrid models like pharma and agribusiness or pharma and generics,” he said.

Shares in Daiichi Sankyo, Japan’s No. 3 drug maker and best known for its high blood pressure medication Benicar, ended nearly 5 percent higher at 2,975 yen on early reports of a deal. Ranbaxy’s shares rose 1.5 percent to 569.1 rupees.

Under the deal, Daiichi Sankyo will buy the 34.8 percent controlling stake of Ranbaxy’s founders, the Singh family, and make an open offer for a further 20 percent of Ranbaxy shares, as per Indian regulations. The total transaction value is expected to be worth between $3.4 billion to $4.6 billion, the companies said in a statement. Ranbaxy said the deal values the company at $8.5 billion.

“It was overdue for quite a long time for an overseas firm to acquire an Indian drug maker given the cost advantages we offer,” said Sarabjit Kour Nangra, vice president of research at Angel Broking. “Daiichi’s offer for Ranbaxy is definitely a good one and valuations are quite satisfying.”

The deal is the second-biggest purchase of shares in an Indian firm by a foreign company after Vodafone’s (LSE:VOD.L – News) $11 billion purchase of a controlling stake in India’s third-largest mobile phone operator.

Malvinder Singh, chief executive of Ranbaxy, plans to meet the media in India later. New Delhi-based Ranbaxy has grown internationally by selling generics, cheap copies of branded drugs off-patent, or by successfully challenging the patents held by western firms. Hit by spiraling healthcare costs, governments around the world are increasingly seeking to maximize the use of generic medicines, which are becoming more available for a large range of drugs as patents expire. Ranbaxy’s guidance is for 20-25 percent profit growth and 18-20 percent revenue growth for 2008. In the first quarter, its consolidated profit rose 7 percent to 1.53 billion rupees. Consolidated sales were 16.2 billion rupees.

Daiichi Sankyo, also in the media spotlight for its experimental blood thinner prasugrel that it is co-developing with Eli Lilly and Co (NYSE:LLY – News), said it would finance the deal with bank loans and cash. The deal follows Takeda Pharmaceutical Co Ltd’s (Tokyo:4502.T – News) acquisition of U.S. biotech firm Millennium Pharmaceuticals for more than $8 billion and Eisai Co Ltd’s (Tokyo:4523.T – News) purchase of MGI Pharma Inc for $3.9 billion. Both Millennium and MGI Pharma are strong in cancer medicines.

Nomura Securities acted as the exclusive financial adviser to Daiichi Sankyo, while Religare Capital Markets, which is controlled by the Singh family, advised Ranbaxy.

(Additional reporting by Sachi Izumi, Mariko Katsumura and Aiko Hayashi in Tokyo and Rina Chandran and Hient methods including cash and check.

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