Sun Pharmaceutical Industries Ltd. and Ranbaxy Laboratories Ltd  have entered into definitive agreements under which Sun Pharma will acquire 100% of Ranbaxy in an all-stock transaction for $3.2 billion. Under these agreements, Ranbaxy shareholders will receive 0.8 share of Sun Pharma for each share of Ranbaxy. The combination of Sun Pharma and Ranbaxy creates the fifth-largest specialty generics company in the world and the largest pharmaceutical company in India, according to Sun Pharma. The combined entity will have operations in 65 countries, 47 manufacturing facilities, and a portfolio of specialty and generic products marketed globally, including 629 abbreviated new drug applications. On a pro forma basis, the combined entity's 2013 revenues are estimated at $4.2 billion.  

The proposed transaction has been unanimously approved by the boards of directors of Sun Pharma, Ranbaxy, and Ranbaxy's controlling shareholder, Daiichi Sankyo. Ranbaxy's board and Sun Pharma's board have recommended approval of the transaction to their respective shareholders.Sun Pharma expects to realize revenue and operating synergies of $250 million by the third year post closing of the transaction. These synergies are expected to result primarily from topline growth, efficient procurement, and supply-chain efficiencies.

Daiichi Sankyo will become a significant shareholder of Sun Pharma and will have the right to nominate one director to Sun Pharma's board of directors. Ranbaxy has recently received a subpoena from the United States Attorney for the District of New Jersey requesting that Ranbaxy produce certain documents relating to issues previously raised by FDA with respect to Ranbaxy’s facility in Toansa, India. In connection with the transaction, Daiichi Sankyo has agreed to indemnify Sun Pharma and Ranbaxy for, among other things, certain costs and expenses that may arise from the subpoena.

In January 2014, FDA notified Ranbaxy Laboratories, Ltd., that it was prohibited from manufacturing and distributing active pharmaceutical ingredients (APIs) from its facility in Toansa, India, for FDA-regulated drug products with the Toansa facility becoming subject to certain terms of a consent decree of permanent injunction entered against Ranbaxy in January 2012. Under the decree, FDA issued an order prohibiting Ranbaxy from distributing in the United States drugs manufactured using API from Toansa, including drugs made by Ranbaxy's Ohm Laboratories facility in New Jersey, manufacturing API at its Toansa facility for FDA-regulated drug products, exporting API from Toansa to the United States for any purpose, and providing API from Toansa to other companies, including other Ranbaxy facilities, making products for American consumers. The FDA's inspection of the Toansa facility, which concluded on Jan. 11, 2014, identified cGMP violations. These included Toansa staff retesting raw materials, intermediate drug products, and finished API after those items failed analytical testing and specifications, in order to produce acceptable findings, and subsequently not reporting or investigating these failures.

The transaction will need approval by majority in number representing 75% in value of the shares present and voting at the shareholder meetings of each of Sun Pharma and Ranbaxy. Both DaiichiSankyo (which holds approximately 63.4% of the outstanding shares of Ranbaxy) and promoters ofSun Pharma (who hold approximately 63.7% of the outstanding shares thereof) have irrevocably agreed to vote in favor of the transaction.

Additionally, the closing of the transaction will be subject to customary closing conditions, including approval by the Indian Central Government, approval by the High Courts of Gujarat and Punjab and Haryana, approval by the Competition Commission of India and expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act in the United States. Pending approvals, Sun Pharma anticipates that the transaction will close by the end of calendar year 2014.

Sources: Sun Pharma and FDA