Ranbaxy's promoters sold their stake to Japanese firm Daiichi Sankyo but how will they utilize the money?
16-Jul-2008 •Research Desk
Last month, the biggest news in not only the pharmaceutical industry, but in all of corporate India was Ranbaxy becoming a subsidiary of Daiichi Sankyo, a Japanese pharmaceutical major. The collective reaction to this move was that of shock and awe. With this move, Daiichi Sankyo would acquire the entire Ranbaxy promoters' stake of 34.82 per cent. Sounds huge? Wait till you hear the amount the Japanese firm would be paying both the promoters Malvinder Singh and Shivender Singh: a whopping Rs. 10,000 crore!
• Ranbaxy was started by Ranjit Singh and Gurbax Singh way back in 1937
• The company started out as a distributor for the Japanese company Shionogi
• Bhai Mohan Singh bought the company in 1952 from his cousins Ranjit Singh and Gurbax Singh
• Bhai Mohan Singh's son, Parvinder Singh joined the company in 1967 and led about a significant transformation in its business and scale
• Ranbaxy clocked $1 billion in sales in 2007
• Malvinder Singh and Shivender Singh, sons of Parvinder Singh, sold the company to a Japanese firm in 2008, thus completing a full circle
This strategic deal is set to go down in history for many reasons. It might appear in B-school case-studies, or on the other hand, the Singh brothers might vindicate the famous corporate saying - 'first generation creates business, the second generation proliferates it and the third generation blows it away'. What will happen, only time will tell. But for now, what needs to be seen is what Malvinder and Shivender do with their newly acquired abundant riches.
The two sectors that the Singh brothers have already set sights on are Healthcare and Financial Services. Let's take a look at their endeavours in these business areas.
India has a population of 1.2 billion, and that's not the only sad news. The sadder news is that only 35 per cent of this population has access to healthcare. Hence, predictably, healthcare is right on top of the Government's priority list and Fortis is well poised to benefit from this scenario.
Fortis was incorporated in 1996 and has 13 hospitals across six states in North India, which include cardiac and cancer speciality centres. In the past, Fortis did manage to gulp down Escort Hearts Institute - the premier name in cardiac research - and has also acquired a hospital chain down south. With a decent presence in North India, Fortis now plans to expand in Southern and Eastern India. Earlier this year, International Hospital Limited, a wholly owned subsidiary of Fortis Healthcare Limited, along with Oscar Investments Limited completed the acquisition of 62.17 per cent of the equity share capital of Malar Hospitals Limited, Chennai, for a consideration of Rs 34.68 crore. Shivender Singh, CEO and Managing Director, Fortis Healthcare, said, "The completion of the acquisition process is an important milestone in our national rollout plans. Malar Hospital is well established in Chennai, and enjoys strong brand equity in the South, which is an advantage, as it is our first entry into the region. We would also look at expanding our footprints in the South soon, going forward."
Fortis went public in May 2007 and raised Rs 500 crore and an additional Rs 153 crore in pre-IPO placements. While a major portion of the IPO proceeds went in the refinancing of funds for the acquisition of Escorts Heart Institute & Research Centre, one can expect a decent portion of the Rs 10,000 crore jackpot to be diverted towards setting up of new hospitals and more acquisitions in the coming years.
Religare Enterprises is a financial service company with diversified interests. The company's businesses are broadly clubbed under three key verticals - the retail, institutional and wealth spectrums. All businesses are operated through various subsidiaries held through the holding company - Religare Enterprises.
The company offers a diverse bouquet of services ranging from equities, commodities and insurance broking to wealth management, portfolio management services, personal financial services, investment banking and institutional broking services. The company went public in November 2007 and raised Rs 140 crore via IPO and Rs 60 crore via pre-IPO placements.
As part of its recent initiatives, the company has also started expanding globally and has acquired London's oldest brokerage firm, Hichens, Harrison & Co Plc. Religare has also successfully partnered with Aegon to launch life insurance and mutual fund products in India and with Macquarie, for a wealth management joint venture. Identified as a second most important pillar of the group's strategy, Religare is expected to feed on the giant Rs 10,000 crore kitty as well.
So, what happens to Ranbaxy?
The answer to this question is a bundle of good news for Ranbaxy. First and foremost, post acquisition, Ranbaxy would become a total debt-free firm with a cash surplus of Rs. 2,800 crore. Over and above this, the combined market capitalization of both companies - Ranbaxy and Daiichi Sankyo - would be around $30 billion, making it the world's 15th largest pharmaceutical company. Malvinder Singh would continue to be the Chief Executive and MD of Ranbaxy for the coming five years, and maybe even more. However, the only difference would be that he (Malvinder Singh) would now be serving Japanese interests and not his own.
Oh, and by the way, Daiichi Sankyo is also set to make an open offer for an additional 20 per cent stake in Ranbaxy at a price of Rs. 737 per share, which represents a premium of over 50 per cent on the average price over the last three months.
All of this draws out one conclusion: these surely are the healthiest times that Ranbaxy has ever seen.