SUN PHARMA'S RANBAXY ACQUISITION: THE WINNERS AND LOSERS

India's Sun Pharma acquired Gurgaon-based drug maker Ranbaxy Laboratories, owned by Japan's Diiachi Sankyo, for $4 billion in a deal to create world's fifth largest specialty generic Pharma Company through an all-stock merger in which five shares of Ranbaxy will fetch four shares of Sun Pharma. 

Sun-Ranbaxy combined will become largest Indian Pharma Company. The Sun Pharma- Ranbaxy deal is the biggest in Pharma sector in Asia-Pacific.

WHO BENEFITS AND HOW?

Daiichi is the parent company of Ranbaxy since it bought the Indian drug maker from its earlier promoters. With Sun Pharma acquiring Ranbaxy, Daiichi is relieved of the burden of managing Ranbaxy’s problems. It will hold 9% stake in the combined entity.

ENHANCED GLOBAL MARKET PRESENCE

The combined entity will have 47 manufacturing facilities across 5 continents. It will have an established presence in key high growth emerging markets. In India, it will be ranked No. 1 by prescriptions amongst 13 specialty segments.

FINANCIALLY COMPELLING TRANSACTION

Sun Pharma expects to realize revenue and operating synergies of US$ 250 million by third year of acquisition and implement remedial measures to tackle the regulatory issues with the US Food and Drug Administration.

TRANSACTION DETAILS

Under the agreements, Ranbaxy shareholders will receive 0.8 shares of Sun Pharma for each share of Ranbaxy. The expected revenue of the combined entity is $4.2 billion.

MAHINDRA-CIE CONGLOMERATION DEAL, 2013

FACTS

• On 12th July, 2013 the Competition Commission of India (CCI) received a Notice relating to a proposed Combination under section 6(2) of the Competition Act, 2002 by CIE Group Companies and the Mahindra Group Companies.

• Mahindra & Mahindra (M&M) and CIE Group had entered into various Agreements on June 15, 2013 following which they had approached CCI for its Approval.

• As per the deal, CIE would consolidate its European Forgings Businesses with Mahindra Systech firms that comprises of Mahindra Forgings, Mahindra Composites, Mahindra Castings, Mahindra Investments, Mahindra Gears International and MUSCO, into one entity - Mahindra CIE Automotive Limited constituting a series of steps such as Acquisition of Stake in  Mahindra Forgings, Mahindra Composites and Mahindra  Castings by a CIE's Paticipaciones Internacionales Autometal (PIA).

• CIE Group had no presence in the Auto-Component Business in India as well as no Investments in Indian Firms involved in Auto-Component Businesses.

• After the Implementation of deal -

1. M&M would continue to be present as a Shareholder of Mahindra CIE with a Holding of 20.04 percent.
2. The Technologies currently being used by the Mahindra Systech firms would continue to be utilized.

APPROVAL BY CCI

CCI observed that the deal did not contemplate combination of two existing players in the Indian Auto Component manufacturing Business and will not have adverse effect on Competition. Hence, it has given its Approval to Conlomerate Mahindra & Mahindra Group's (M&M) proposed deal with Spain's Auto-Component Maker CIE Group.

THE JET-ETIHAD ACQUISITION DEAL, 2013

EMERSION OF THE DEAL:

• Indian Government allowed Foreign Airlines to own up to 49% Stake in Indian Carriers in September 2012.
• On April 22, 2013 Cabinet approved 40,000 Bilateral Seat Rights per week to Abu Dhabi.
• On April 24, 2013 Etihad Airways announced to purchase 24% stake amounting to Rs. 2058 crore in Jet Airways.
• On April 24, 2013 Bilateral Agreement was signed between India and Abu Dhabi followed by Jet-Etihad Deal.

 CONCERNS RAISED BY SEBI AND DIPP:

On July 22, 2013  SEBI and DIPP raised concerns on Effective Control.

SEBI's concerns over Commercial Cooperation Agreement (CCA):

1. CCA will give Etihad Airways the upper hand in Operational Matters.
2. Etihad gets right to source candidates for Senior Management positions.
3. Plan to shift Network and Revenue Management functions and Consolidate Sales Office to Abu Dhabi.
4. Etihad would lead role in Negotiating with Suppliers.
5. All major decisions to be approved by Etihad which would give Etihad Airwyas substantial control over Jet Airways. Hence, SEBI proposed to amend Corporate Governance Code Clauses for passage of Board Resolutions by Simple Majority.
6. The nominations Committee should not have exclusive powers to recommend appointment or removal of all Independent Directors and the CEO as these powers were against the Companies Act, 1956.

DIPP's concerns over Shareholder's Agrement:

1. Effective Control and Ownership lie with Etihad and not Jet Airways.
2. If Naresh Goyal's stake is included, the 49% FDI limit is breached.
3. Under the FDI Norms, Voting and Nomination Rights should stay with Jet Airways.

Jet Airways had submitted a modified Shareholder Agreement on July 25, 2013 to address all concerns raised by various ministries and Stock Market watchdog SEBI.

On July 29, 2013 the deal was cleared with conditions that include:

1. Jet Airways will have to seek prior approval from the Government for making any changes in the Shareholder's Agreement.
2. Articles of Associationshould override Shareholders Agreement.
3. Etihad to get 2 seats on 12 member Board.
4. All Independent Directors should be Indian.
5. Jet airways will appoint 4 Directors of which 1 can be Foreigner.
6. The 9% stake owned by Tailwinds, holding company in Jet will have to be directly owned by Jet Chairman - Naresh Goyal.
7. All disputes relating to Shareholder Pact to be settled under Indian Law.
8. Any Arbitration in respect of other issues can be in London.

The deal is seen as a positive for the Aviation Sector since most of the Indian Carriers are bleeding due to high debt and surging fuel costs.