Ranbaxy Stake Sale …. Rationale behind sale.

Today’s biggest business news in India is the sale of Ranbaxy to Japanese Company Daiichi Sankyo. It has come as a surprise to many of us, as we all know how Ranbaxy has grown over  last few years, especially last decade. After the death of father, Malvinder Singh successfully taken Ranbaxy to new heights and established it as a top pharma company.

The Daiichi Sankyo brought promoters stake of 35 %  at Rs 737/Share and will also make an open offer to acquire controlling stake of 51 per cent in the company at Rs 737 per share. The transaction value is expected to be between $3.4-4.6 billion and would value Ranbaxy Laboratories at $8.5 billion. For more details Click here.

I was just trying to understand the rationale for the sale of Ranbaxy. One reason may be that Malvinder Singh wanted to take Ranbaxy truly global company and want to shift from Generic drug producers to generic drug specialists. He might have understood it is not possible until unless he takes help from global generic specialists. But it is a remote possibility as, if wanted to make Ranbaxy global company then he would have taken merger route rather than the present route. Other possibility is probably Malvinder understood the Challenges ahead in the presently dull pharma sector and knowing their capabilities or incapabilties in generic drugs, he decided to sell the stake before valuation of the company drops. Hence when he got the premium price, he decided to sell. Read this article for details

It is also said that Malvinder Singh will continue as CEO of the company. We need to see how long. Also it is interesting to see what is he going to do with all the money. Whether  he is going to venture in to new line of business ? If yes, which Business. Probably something different from Pharma or may be Pharma also.

The Singh Family is known for selling their company at premium prices. The other scion of Singh family, Analjit Singh had sold stakes in Max India Ltd and Hutch Max ( Orange mobile). They have a knack of creating value for a company and selling it at right price at right time. However it is surprising that the Malvinder Singh has decided to go Anljit Singhs’ way.

It also interesting to see how the new management of Ranbaxy, Daiichi Sankyo will take the forward step in Growth of Ranbaxy and increase return to shareholders. The deal is very good for Daiichi Sankyo as this will give base to them in producing generic drugs at lower cost. The approach of these two companies complement each other as Daiichi is a generic specialist and Ranbaxy is a low cost generic drug producer.Time only will tell the future of Ranbaxy.

Critically Yours

Kiran