Under scanner

FIPB could review the offer as a “procedural issue” at a meeting on August 26

Moumita Bakshi Chatterjee

New Delhi, Aug. 23 Even as the open offer by Daiichi Sankyo to acquire additional 20 per cent stake in Ranbaxy Laboratories is currently on, a “procedural issue” appears to have cropped up on the Japanese drug maker’s plans to increase its stake in the Indian drug company through issue of warrants.

The Foreign Investment Promotion Board (FIPB) now plans to place Daiichi’s FDI proposal to acquire stake in Ranbaxy before the Cabinet Committee on Economic Affairs (CCEA), as the proposal exceeds Rs 600 crore and hence requires CCEA nod.

In June, the Japanese company had announced it would buy 34.81 per cent stake in Ranbaxy, held by the Singh family, and also acquire up to 9.21 crore shares at Rs 737 each through the open offer. Daiichi Sankyo would further acquire 9.5 per cent through preferential allotment of equity shares and another 4.5 per cent through share warrants to be issued on a preferential basis (2.38 crore warrants – exercisable between 6 and 18 months from the date of allotment, for one fully paid-up equity share of Rs 5 each at price of Rs 737, being the price higher than that determined by SEBI guidelines).

Following this, Daiichi Sankyo’s stake in Ranbaxy could go up to 58 per cent. The entire deal is valued at $3.4 billion to $4.6 billion.

As per the FDI policy, as the proposal attracts Press Note 1 (2005 series) and also issue of warrants, it required the FIPB nod, sources said. The FIPB had accordingly considered the proposal on July 29 and also recommended it for an approval.

However, sources pointed out that the given FDI inflow on warrants itself adds up to well over Rs 600 crore, the FIPB is slated to take it up again in its meeting on August 26, and recommend the proposal for a possible consideration by CCEA. Sources added that FIPB taking up the proposal again was more of a “procedural issue”.

Ranbaxy officials were not available for comments. Asked if there were any changes in the schedule in the light of the ongoing developments, merchant banking sources said, “Ranbaxy open offer is as per schedule, we have not been communicated anything that requires any change of schedule of activities.”

Related Stories:
Daiichi Sankyo open offer for Ranbaxy from August 16
Daiichi Sankyo gets SEBI nod for Ranbaxy open offer
Daiichi Sankyo to buy 51% in Ranbaxy at Rs 737/share

(This article was published in the Business Line print edition dated August 24, 2008)
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