Sun–Ranbaxy merger process: Much work still to be done

With the much-awaited approval from the Competition Commission of India coming through, Sun Pharma’s merger with Ranbaxy has entered its last mile.

But even as the anti-competition authority’s green signal marks several milestones, there’s still much work to be done before the two companies operate as a single entity.

In giving its approval, the CCI has cleared the way for the creation of India’s largest drug company with revenues of over Rs 25,000 crore. And if that is not a milestone in itself, the CCI has clocked another first of sorts in the implementation of the competition law.

It is the first time a merger and acquisition (M&A) transaction went into phase II investigation involving public scrutiny, says Avaantika Kakkar, Partner, Khaitan & Co, who led the negotiations for Sun with the CCI.

Sun’s $4 billion proposal to merge Ranbaxy with itself was scrutinised for the possible adverse impact it could have in the competitive market place. And the final decision was that seven drugs be dropped between the two companies.

Such competition-related evaluations are common occurrence in a mature regime, says Kakkar. And here too, the CCI made an assessment of the real concerns and has come out with an order that sets a precedent, she says. While there is a law, how it plays out is something that gets illustrated in a case like this, she explains.

Major M&A transactions in the pharmaceutical sector, specially as domestic businesses were bought out by foreign owners, had raised the hackles of Government and public health advocates. They apprehended that India would become vulnerable from a health-security point of view, if its manufacturing capability went into foreign hands. And this led to a call for mega transactions in this strategic sector to be whetted by two gate-keepers – the Foreign Investment Promotion Board and the CCI.

Such a concern did not come up in the Sun-Ranbaxy case, as Ranbaxy (owned by Japanese drugmaker Daiichi Sankyo) was in fact coming back into the fold of a domestic drugmajor, Sun. The transaction was largely scrutinized from a competition point of view.

Not yet a done deal

The transaction still has to get approvals at home, from the Punjab and Haryana High Court, and abroad from the United States Federal Trade Commission (USFTC).

With much of the discussions already done, a final USFTC order is expected shortly, says a source familiar with the development.

Meanwhile, still on the agenda is the divestment of seven overlapping drugs, and the CCI will appoint an agency to oversee the process. While Sun will be in the driver’s seat in getting the divestment done, the revenues from these products are about Rs 50 crore, a source said. The process of getting buyers for the products will now get underway.

All this has a six month deadline, following which the deal is truly sealed. And even as this gets wrapped up, there is the reality that four of Ranbaxy’s India plants are banned from selling in the US.

So, much attention will continue to be on the combined entity, as Sun deals with regulatory concerns in the US, some involving its own plants and others to do with Ranbaxy.

>jyothi.datta@thehindu.co.in

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