The report intends to analyze the Daiichi-Ranbaxy deal in detail to fan out the benefits, synergies, issues and bottlenecks arising out of the merger.

1. MERGERS, ACQUISITIONS AND
CORPORATE RESTRUCTURING
TERM PROJECT – Daiichi & Ranbaxy
2/11/2008
Merger
The report intends to analyze the Daiichi – Ranbaxy
deal in detail to fan out the benefits, synergies,
issues and bottlenecks arising out of the merger.

2. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
MERGERS, ACQUISITIONS AND CORPORATE
RESTRUCTURING
TERM PROJECT
COMPLIED BY:
MANISH BALLAL
NIIRAJ KOTHAWADE
RAJEEV TIWARI
SAIRAM IYER
SANDEEP VADNERE
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3. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
A NEWSPAPER SNIPPET
“June 11, 2008 – Daiichi Sankyo Company, Limited (TSE: 4568.JP) (“Daiichi Sankyo”), one of the largest
pharmaceutical companies in Japan, and Ranbaxy Laboratories Limited (NSE/BSE: Ranbaxy/500359) (“Ranbaxy”),
among the top 10 generic companies in the world and India’s largest pharmaceutical company, today announced that
a binding Share Purchase and Share Subscription Agreement (the “SPSSA”) was entered into between Daiichi
Sankyo, Ranbaxy and the Singh family, the largest and controlling shareholders of Ranbaxy (the “Sellers”), pursuant
to which Daiichi Sankyo will acquire the entire shareholding of the Sellers in Ranbaxy and further seek to acquire the
majority of the voting capital of Ranbaxy at a price of Rs737 per share with the total transaction value expected to be
between US$3.4 to US$4.6 billion (currency exchange rate: US$1=Rs43). On the post closing basis, the transaction
would value Ranbaxy at US$8.5 billion.”
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4. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
Manmanish
Pharm
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5. INDIAN PHARMA INDUSTRY
CURRENT SCENARIO
India currently holds US$ 7.5 Billion of the $550 Billion global
pharmaceutical industry; its share is increasing at 10% a year.
As compared 7% annual growth for the overall world markets,
this figure speaks of a very promising scenario.
Domestic pharmaceutical companies will increasingly be
looking for consolidation across the value chain by
forming partnerships or mergers with companies of
complementary strengths. As drug discovery becomes
more expensive, and the costs of administration and
regulatory compliance continuously rise, these
partnerships will become more central to
Pharma companies' business proposition.
The Bio Pharmaceutical market is seeing a consistent
growth trend since 2004, which saw record vaccine sales
of US$ 386.3 Million.
CUSTOMER SEGMENTS
The present sales organization in many pharma companies is
oriented towards three customer segments:
(1) Physicians
(2) Hospitals, wholesalers and pharmacies,

6. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
(3) Endcustomers, i.e. patients
PORTER’s FIVE FORCES MODEL FOR INDIAN PHARMA INDUSTRY
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7. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
INDUSTRY COMPETITION
Pharma industry is one of the most Another major factor that adds to the
competitive industries in the country industry rivalry is the fact that the entry
with as many as 10,000 different barriers to pharma industry are very
players fighting for the same pie. The low. The fixed cost requirement is low
rivalry in the industry can be gauged but the need for working capital is
high.
from the fact that the top player in the
country has only 6% market share, and
The fixed asset turnover, which is one
the top five players together have about
of the gauges of fixed cost
18% market share.
requirements, tells us that in bigger
Thus, the concentration ratio for this companies this ratio is in the range of
industry is very low. High growth 3.5 to 4 times. For smaller companies,
it would be even higher.
prospects make it attractive for new
players to enter in the industry.
times average in India). Though volume
growth has been consistent over a
Many smaller players that are focused
period of time, value growth has not
on a particular region, have a better
followed in tandem.
hang of the distribution channel,
making it easier to succeed, albeit in a The product differentiation is one key
limited way. factor, which gives competitive
advantage to the firms in any industry.
An important fact is that pharma is a
In pharma industry product
stable market and its growth rate
differentiation was not possible since
generally tracks the economic growth
India had followed process patents till
of the country with some multiple (1.2
2004, with laws favouring imitators.
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8. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
BARGAINING POWER OF BUYERS
However, on Jan 1st 2005, keeping in
tune with WTO requirements, the
industry switched to a product-patent
regime.
The unique feature of pharma industry In pharma industry, the buyers are
is that the end user of the product is scattered and they as such does not
different from the influencer (read wield much power in the pricing of the
doctor). The consumer has no choice products. However, government with its
but to buy what doctor says. However, policies, plays an important role in
when we look at the buyer's power, we regulating pricing through the NPPA
look at the influence they have on the (National Pharmaceutical Pricing
prices of the product. Authority).
BARGAINING POWER OF SUPPLIERS
The pharma industry depends upon However, what can happen is that the
several organic chemicals. The chemical supplier can go for forward integration
industry is again very competitive and to become a pharma company.
fragmented. The chemicals used in the Companies like Orchid Chemicals and
pharma industry are largely a Sashun Chemicals were basically
commodity. chemical companies, who turned
themselves into pharmaceutical
The suppliers have very low bargaining
companies.
power and the companies in the
BARRIERS TO ENTRY
pharma industry can switch from their
suppliers without incurring a very high
Pharma industry is one of the most
cost.
easily accessible industries for an
entrepreneur in India. The capital
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9. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
requirement for the industry is very
low, creating a regional distribution This model gives a fair idea about the
network is easy, since the point of sales industry in which a company operates
is restricted in this industry in India. and the various external forces that
influence it.
However, creating brand awareness and
franchisee amongst doctors is the key Going forward, we foresee increasing
for long-term survival. Also, quality competition in the industry but the
regulations by the government may put form of competition will be different. It
some hindrance for establishing new will be between large players (with
manufacturing operations. economies of scale) and it may be
possible that some kind of oligopoly or
cartels come into play.
This is owing to the fact that the
This is one of the great advantages of
industry will move towards
the pharma industry. Whatever
consolidation. The larger players in the
happens, demand for pharma products
industry will survive with their
continues and the industry thrives. One
proprietary products and strong
of the key reasons for high
franchisee.
competitiveness in the industry is that
as an on going concern, pharma The barriers to entry will increase going
industry seems to have an infinite forward. The change in the patent
future. regime, will see new proprietary
products coming up, making imitation
However, in recent times, the advances
difficult. The players with huge capacity
made in the field of biotechnology, can
will be able to influence substantial
prove to be a threat to the synthetic
power on the fringe players by their
pharma industry.
aggressive pricing which will create
hindrance for the smaller players.
CONCLUSION
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10. SWOT ANALYSIS
Strengths  New innovative therapeutic products
 Globalization
 Cost effective technology
 Drug delivery system management
 Knowledge based, low- cost
manpower in science & technology  Increased incomes
 High standards of purity  Production of generic drugs
Non-infringing processes of Active
 Contract manufacturing
Pharmaceutical Ingredients (APIs)
 Future growth driver Threats
 Small number of discoveries
Weaknesses
Competition from MNCs
 Low Indian share in world  Transformation of process patent to
pharmaceutical market (about 2%) product patent (TRIPS)
 Lack of strategic planni g
n  Outdated Sales and marketing
methods
 Fragmented capacities
 Non-tariff barriers imposed by
 Low R&D investments
developed countries
 Absence of association between
institutes and industry
 Low healthcare expenditure KEY DRIVERS OF DEMAND: PUSH-PULL
MARKETING STRATEGIES
 Production of duplicate drugs
The push aspect would be targeted
 Opportunities towards the doctors and other medical
practitioners, who are the drivers of
 Incredible export potential
demand in this sector. Drugs
 Increasing health consciousness

11. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
prescribed to patients are normally Advertising and consumer awareness
adhered to by them campaigns are gaining importance and
we are increasingly witnessing
The pull aspect would mean demand
elaborate campaigns like say Cipla's
from the consumers’side.
Asthma TV commercials. Informing
Traditionally, pharma companies have consumers about diseases in general
targeted their marketing towards the and then introducing their drug in the
push side, targeting doctors mainly. presentation is the new way to embed
However, the last few years have drug names into the consumer's mind.
ushered a new era.
quot;OTC drugs are close to FMCG goods in
a lot of ways,quot; says Asha Kapoor,
The consumer is king, invest in the pull Executive Director, Sudler & Hennessey.
and reduce the push. This is emerging But now it's the prescription drugs, take
as the preferred marketing strategy of the GSK print media campaign for its
pharma companies like Cipla, Dr Hepatitis A and B campaign, which was
Reddy's, Sun Pharma for their supported by road shows and was
prescription drugs, a route that over- launched in the hepatitis season.
the-counter (OTC ) drugs took long
back. quot;Vaccines are taken when people are
well, as opposed to antibiotics, where
Earlier, most companies used to the choice factor is much less present,quot;
approach doctors with their a GSK spokesperson said. Hence it's
prescription drugs, offering carrots like possible to urge consumers to exercise
junkets for a particular number of a conscious choice. To keep to the
prescriptions. Now they've realized the rules, vaccine names are not displayed.
long-term benefits in building brands
and creating informed, loyal The rules are limiting but now that
consumers. companies have tasted blood they will
find ways and means of keeping the
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12. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
consumer aware of their brands. At the industry has fallen to a record low. For
end, that may be good for consumer the top 20 pharma companies,
too. productivity has fallen from an average
of 1.5 new products annually during
According to AdEx India, Print most of the 1990s, to just under one
product per company, since 2000.
advertising of OTC sector grew by 9%
during Jan-Sept '07 and 'Cipla I-Pill'
With such poor productivity levels, it is
was the most advertised new brand in
not surprising that mergers and
Print
acquisitions have again risen to the
forefront of many executives’ minds as
an immediate route to strengthening
RECENT TRENDS
R&D pipelines and increasing
shareholder value.
Today, there is a global trend towards
consolidation which going forward, will
Apart from the patented pharmaceutical
only gather steam, as pressure to
and biotech companies scouting for
synergize within the pharmaceutical
acquisition in newer geographies to
industry is increasing. The lack of
launch their patented molecules, widen
innovative research and development
product basket and strengthen R&D
(R&D), expiring patents, generic
pipelines, the global generics market
competition and high profile product
has also undergone an unprecedented
recalls are driving the mergers and
consolidation wave in the past two
acquisition (M&A) activity in the global
years. Of the recent noted transactions
pharmaceutical and biotech sector.
are Sun Pharma’s (India) acquisition of
Taro (Israel), DRL’s (India) acquisition of
The most pressing need for many
betapharm (Germany) and Barr’s long
pharma companies in the world is to
contested acquisition of Pliva (Croatia)
create a pool of new products to secure
future growth. According to Scrip, in
The spate of mergers and acquisitions
recent years, productivity in the pharma
by Indian companies has ushered an
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13. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
era of the “Indian Pharmaceutical MNC”. especially via the inorganic route.
After traversing the learning curve Companies such as Ranbaxy,
through partnerships and alliances with Wockhardt, Cadila, Matrix, and Jubilant
international pharmaceutical firms, have made one or more European
Indian pharmaceutical companies have acquisitions, while others such as
now moved up a step in the value chain Torrent are also scouting for potential
targets.
and are looking at inorganic route to
grow through acquisitions. Many top-
and mid-tier Indian companies have
gone on a global “shopping spree” to
Besides gaining a faster entry into the
build up critical mass in International
target market, one of the basic
markets. Also, given the easy access to
strategies behind the acquisitions
global finance the Indian companies are
remains that of leveraging India’s low
finding it easier to fund their
cost advantage by shifting the
acquisitions.
manufacturing base to India. At the
Over the last two years, several Indian
same time, the acquired companies
companies have targeted the developed
also serve as an effective frontend for
markets in their pursuit of growth,
Indian companies in these markets.
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14. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
DEAL FINANCIALS
THE DEAL
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15. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
leadership of its current CEO &
Managing Director Malvinder Singh.
The main benefit for Daiichi Sankyo
from the merger is Ranbaxy’s low-cost
manufacturing infrastructure and
supply chain strengths. Ranbaxy gains
access to Daiichi Sankyo’s research and
development expertise to advance its
branded drugs business. Daiichi
Sankyo’s strength in proprietary
medicine complements Ranbaxy’s
leadership in the generics segment and
both companies acquire a broader
product base, therapeutic focus areas
and well distributed risks. Ranbaxy can
also function as a low-cost
manufacturing base for Daiichi Sankyo.
THE DEAL
Ranbaxy, for itself, gains smoother
access to and a strong foothold in the
Daiichi Sankyo Co. Ltd. signed an
Japanese drug market. The immediate
agreement to acquire 34.8% of Ranbaxy
benefit for Ranbaxy is that the deal
Laboratories Ltd. from its promoters for
frees up its debt and imparts more
$2.4 billion at $17 per share. Daiichi
flexibility into its growth plans. Most
Sankyo expects to increase its stake in
importantly, Ranbaxy’s addition is said
Ranbaxy through various means such
to elevate Daiichi Sankyo’s position
as preferential allotment, public offer
from #22 to #15 by market
and preferential issue of warrants to
capitalization in the global
acquire a majority in Ranbaxy, i.e. at
pharmaceutical market.
least 50.1%. After the acquisition,
Ranbaxy will operate as Daiichi
SYNERGIES
Sankyo’s subsidiary but will be
managed independently under the
The key areas where Daiichi Sankyo and
Ranbaxy are synergetic include their
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16. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
respective presence in the developed the gaps that exist in greater detail.
and emerging markets. While Ranbaxy’s Ranbaxy has a greater share of the
strengths in the 21 emerging generic entire set of patents filed by both
drug markets can allow Daiichi Sankyo companies in the period 1998-2007.
to tap the potential of the generics While Daiichi Sankyo’s patenting
business, Ranbaxy’s branded drug activity has been rather mixed,
development initiatives for the Ranbaxy, on the other hand, has
developed markets will be significantly witnessed a steady uptrend in its
boosted through the relationship. To a patenting activity until 2005. In fact,
large extent, Daiichi Sankyo will be able during 2007, the company’s patenting
to reduce its reliance on only branded activity plunged by almost 60% as
drugs and margin risks in mature against 2006.
markets and benefit from Ranbaxy’s
POST ACQUISITION STRATEGIC
strengths in generics to introduce
OBJECTIVES
generic versions of patent expired
drugs, particularly in the Japanese
In light of the above analyses, Daiichi
market.
Sankyo’s focus is to develop new drugs
to fill the gaps and take advantage of
Both Daiichi Sankyo and Ranbaxy
Ranbaxy’s strong areas. To overcome
possess significant competitive
its current challenges in cost structure
advantages, and have profound
and supply chain, Daiichi Sankyo’s
strength in striking lucrative alliances
primary aim is to establish a
with other pharmaceutical companies.
management framework that will
Despite these strengths, the companies
expedite synergies. Having done that,
have a set of pain points that can pose
the company seeks to reduce its
a hindrance to the merger being
exposure to branded drugs in a way
successful or the desired synergies
that it can cover the impact of margin
being realized.
pressures on the business, especially in
With R&D perhaps playing the most Japan. In a global pharmaceutical
important role in the success of these industry making a shift towards
two players, it is imperative to explore generics and emerging market
the intellectual property portfolio and opportunities, Daiichi Sankyo’s
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17. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
acquisition of Ranbaxy signals a move Daichii, there might be certain
on the lines of its global counterparts conflict of interest while taking
Novartis and local competitors Astellas strategic long term decisions.
Pharma, Eesei and Takeda
POST MERGER ANALYSIS
Pharmaceutical. Post acquisition
challenges include managing the
In summary, Daiichi Sankyo’s move
different working and business cultures
to acquire Ranbaxy will enable the
of the two organizations, undertaking
company to gain the best of both
minimal and essential integration and
worlds without investing heavily into
retaining the management
the generic business. The patent
independence of Ranbaxy without
perspective of the merger clearly
hampering synergies. Ranbaxy and
indicates the intentions of both
Daiichi Sankyo will also need to
companies in filling the respective
consolidate their intellectual capital and
void spaces of the other and emerge
acquire an edge over their foreign
as a global leader in the
counterparts.
pharmaceutical industry.
Furthermore, Daiichi Sankyo’s
INTEGRATION ISSUES
portfolio will be broadened to
Ranbaxy and Daichii have a include steroids and other
completely different employee technologies such as sieving
culture. This will pose some methods, and a host of therapeutic
cultural integration issues. segments such as anti-asthmatics,
Though Ranbaxy is an extremely anti-retrovirals, and impotency and
well managed and process anti-malarial drugs, to name a few.
oriented company, it will face Above all, Daiichi Sankyo will now
problems in matching up with have access to Ranbaxy's entire
Daichii’s relentless focus on range of 153 therapeutic drugs
quality. across 17 diverse therapeutic
Considerable Geographical indications.
Barriers
Additional NDAs from the US FDA on
Though there is a strategic
anti-histaminics and anti-diabetics
alignment between Ranbaxy and
is an added advantage.
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18. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
Through the deal, Ranbaxy has company now. While Daiichi Sankyo has
become part of a Japanese corporate stressed that it going ahead with the
framework, which is extremely reputed deal, it raises some concerns over the
in the corporate world. As a generics impending benefits and has in fact
player, Ranbaxy is very well placed in already affected Ranbaxy’s share
both India and abroad although its performance in September 2008. Post
share performance belies its true the deal, Ranbaxy’s debt will be
potential. Ranbaxy is also an emerging significantly reduced and will impart
branded drug manufacturer possessing more flexibility to pursue growth
tremendous clout in terms of strategic opportunities. The acquisition
alliances with some of the biggest corroborates the strong possibility for
players in the industry. Given Ranbaxy’s similar moves in the future, particularly
intention to become the largest from Japanese players who have begun
generics company in Japan, the displaying confidence in Indian patent
acquisition provides the company with laws and respect for intellectual
a strong platform to consolidate its property rights.
Japanese generics business. From one
of India's leading drug manufacturers,
Ranbaxy can leverage the vast research
and development resources of Daiichi
Sankyo to become a strong force to
contend with in the global
pharmaceutical sector. A smooth entry
into the Japanese market and access to
widespread technologies including,
plant, horticulture, veterinary treatment
and cosmetic products are some things
Ranbaxy can look forward as main
benefits from the deal.
However, the recent ban on the US
imports of more than 30 Ranbaxy
drugs is a major pain point for the
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19. MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
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