Sun Pharmaceuticals To Acquire Ranbaxy In An All-Stock Deal Worth $3.2B To Create World's Fifth Largest Generic Drug Company

India’s largest drug maker by market value, Sun Pharmaceutical Industries Ltd. (BOM:524715) announced Sunday that it will acquire Ranbaxy Laboratories Limited (BOM:500359) in an all-stock deal worth $3.2 billion, and the merged entity will be India's largest drug maker and the fifth-largest generic drug company in the world.

Mumbai-based Sun Pharma said in a statement that Ranbaxy’s shareholders will get 0.8 shares of Sun Pharma for each Ranbaxy share and expects the transaction to be completed by December. Tokyo-based Daiichi Sankyo (TYO:4568), which holds a 63.4 percent stake in the Gurgaon-based Ranbaxy, will receive a 9 percent stake in the merged entity, and will have the right to nominate a director to its board. The combined unit will have operations in 65 countries with 47 manufacturing units and is expected to generate revenues worth $4.2 billion.

“Ranbaxy has a significant presence in the Indian pharma market and in the US where it offers a broad portfolio of ANDAs (Abbreviated New Drug Application for a U.S. generic drug approval for an existing licensed drug) and first-to-file opportunities. In high-growth emerging markets, it provides a strong platform which is highly complementary to Sun Pharma’s strengths. We see tremendous growth opportunities and are excited with the prospects to create lasting value for both our shareholders through a successful combination of our franchises,” Dilip Shanghvi, managing director of Sun Pharma, said in a joint statement with Ranbaxy.

Ranbaxy, which is currently banned by the FDA from exporting to the U.S. from three of its India-based units, paid nearly $500 million in fines to the U.S. regulator last year. In March, the company recalled two batches of its generic version of the cholesterol drug, Lipitor, while Sun Pharma had recalled a batch of its generic version of the diabetes medicine, Glumetza.

Last month, the U.S. imposed a ban on imports from a division of Sun Pharma, saying that the unit was not "operating in conformity with good manufacturing practices," according to BBC.

The U.S. Attorney for the District of New Jersey had sent a subpoena in March to Ranbaxy asking the company to produce documents related to its Toansa facility, the company said in a release on its website. Toansa is one of the plants that the company has halted export shipments from, affecting exports to other key markets including Europe, local media reports said in February.

At the time, the company had said, in a statement, that it was scrutinizing the processes at all its manufacturing units, adding: "This voluntary decision was taken as a precautionary measure and out of abundant caution to better allow us to assess and review the processes and controls. We will resume shipments after reassuring ourselves about the processes and controls at these facilities."

Daiichi Sankyo will indemnify the expenses from the subpoena, according to the joint statement released Sunday announcing the deal.

Citigroup Inc. (NYSE:C) and Evercore Partners (NYSE:EVR) are advising Sun Pharma on the transaction while Ranbaxy is being advised by ICICI Securities (BOM:532174).

“We believe this transaction brings significant value to all Ranbaxy shareholders. Sun Pharma has a proven track record of creating significant long-term shareholder value and successfully integrating acquisitions into its growing portfolio of assets. We are confident that Sun Pharma is the ideal partner to help us realize our full potential and are excited to participate in future value creation opportunities,” Arun Sawhney, managing director and CEO of Ranbaxy, said, in the joint statement.

Sun Pharma’s stock gained 1.68 percent on Monday since the announcement while Ranbaxy’s stock had lost more than 4 percent in mid-morning trade on the BSE Sensex.