Global Mergers & Acquisitions: Special Context to
Pharmaceutical Industry

By

Dr. Amit Kumar Dwivedi
Amity Business School
Amity University Rajasthan
Jaipur

Punit Kumar Dwivedi
Lecturer (Finance)
Bankatlal Badruka College of Information Technology
Hyderabad
 

INTRODUCTION:

Due to effect of globalization there is abnormal increase in the competition rate in various areas of modern business world.  In this competition everyone is fighting for their survival.  The superior are gaining and weaker are loosing the chance.

The popularity of term mergers and acquisitions used by different industries / companies to realize their corporate strategy and /or attain growth has significantly increased in the past few decades.  Since its last peak in the year 2000 mergers are on the agenda of companies again and new record levels are expected.  But merger and acquisition have a long tradition in all the businesses.  Despite of all research that has been carried out till today among these few findings is the fact that mergers and acquisitions started in the United States of America are now spread throughout the world very early, in the last few decades.

The term mergers and acquisitions have two fold affect.  They are related to superiority and inferiority.  In any industry those who have strong grip over the local market are in the mood to affect and enter in the national market as well as international market and for that they require strong base.  By adopting merger and acquisition techniques it is very easy to reform their state and make a strong base to survive in the national & international market.

INDIAN PHARMACEUTICAL INDUSTRY: GROWTH AND POSITION

The world's second largest population bearing country India has good control over its pharma business and it is fulfilling its medical needs with the help of this industry.  The drug and pharmaceutical industry in India is producing and fulfilling more than 70% of the India's demand for pharmaceutical formulation

* Capsules
* Bulk drugs
* Drug intermediates
* Chemicals
* Tablets
* Orals and
* Ingectible

There are more than 250 large manufacturers and suppliers.  There are also more than 8000 small scale drug units and pharmaceutical units who form the core of the pharma industry in India and it also includes 5 public units. Technologically and totally self reliant, the pharmaceutical industry in India has –

* Low cost of production
* Low R&D cost.
* Innovative scientific manpower
* Strength of national laboratories
* An increasing balance of trade

Portfolio Analysis of Pharma Companies :

The portfolio analysis is very important tool to know the actual position of the company in the industry / market. The market value of shares of company reveals the actual clear picture of company's position and net wealth.  Here we are taking the growth percent study of 5 pharmaceutical companies and their current market prices and percentage gain in the year 2008 irrespective of painful inflation.

The company was incorporated as per Indian companies act in the year 1961.  The name Ranbaxy came from the name of its previous owners Ranjeet Singh and Gurubax Singh.  The first 3 letters of Ranjeet and Last 3 letters of Gurubax jointly form the name of the company i.e. Ranbaxy went public in the year 1973 and the company formed the first joint venture in 1977 with Logos (Nigeria). In the year 1985 Ranbaxy has started its two new divisions Ranbaxy Research Foundation and Stancare.  In 1987 Ranbaxy has launched its new plant for pharmaceuticals in Punjab (India) and with this it became India's biggest manufacturer of antibiotics.  In the year 1988 the plant which was situated at Punjab got USFDA approval which was very good starts for Ranbaxy in the international market and Ranbaxy was granted its first patent for the medicine named doxycyline.  In the year 1993 Ranbaxy made a joint venture in China and also established its regional headquarters in United Kingdom and U.S.A.

ACQUISITION DEALS BY RANBAXY

Post the early acquisition of Ohm Laboratory in the year 1995 RLL has captured most of others through Brownfield investment, mostly inorganic growth with acquisition of FIVE companies in 2006 mainly in Europe and South Africa. 

* Ranbaxy acquired South Africa's fifth largest generic player Be-Tab Pharmaceutical for $70 million (Rs.315 crores) gave it access to Africa's largest Pharma market valued at close to $ 2 billion. 

* Ranbaxy acquired Romanian Pharmaceutical Company Terapia, S.A. for Rs.1445 crores to further its access into European market giving it access to two manufacturing plants and about 157 drugs.

* At the time of Romanian acquisition, Germany has emerged as one of the most important markets in just a few years after India.  It was next target of Ranbaxy.  Ranbaxy acquired Germany's Merck estimated to be worth more than 4 billion Euros (US $ 5.2 billion).  Ranbaxy acquired business in Germany and entered into Brazil, the largest Pharmaceutical market in South Africa.

* In the year 2003 RLL entered into an alliance for drug discovery and development with GlaxoSmithKline.

* In the year 2004 RLL acquired a wholly owned subsidiary RPG SA and started functioning in France as a top 10 generic company.

* In the year 2005 Ranbaxy acquired generic product portfolio from EFARMES of Spain and launched operation in Canada.

RANBAXY ACQUIRED BY DAICHI SANKYO

After achieving these successful achievements Ranbaxy was itself acquired by a Japanese company - Daichi Sankyo.  The acquisition of Ranbaxy by Daichi represents a major entry for the Japanese firm into the high growth business areas of generic drug.  The acquisition shows that global pharma companies are making efforts to cope up with strong generic drug makers.  By selling off their stake in Ranbaxy the Singh family can move 100 notches up the Forbes billionaires list.  The deal money Rs.9576.29 crores offered by the Japanese firm will increase the net worth of Singh brothers from $ 2.42 billion to $ 2.96 billion.

EFFECT OF THIS ACQUISITION DEAL

In this acquisition deal the Japanese firm Daichi Sankyo has acquired majority stake in Ranbaxy Laboratory Ltd. and would buy the 34.82% stake from the CEO & MD of Ranbaxy Mr. Malvinder Mohan Singh and other promoters of Ranbaxy.  After this acquisition Daichi will become world's 15^th largest pharmaceutical company.  Another good achievement for Daichi is previously it has Business Empire in only 21 countries of the world.  But after this acquisition deal its empire will spread to 60 countries throughout the globe.

DISADVANTAGE FOR INDIAN PHARMACEUTICAL INDUSTRY

The most influencing people in the global pharmaceutical industry Mr. Malvinder Mohan Singh now exits the pharma business.  The good entrepreneur is going to quit his job.  Though he will be working at the same position till March, 2009 (this financial year) but it is very bad end for the growing Indian Pharma industry.

Apart from this, with this acquisition deal Daiichi will enter into the generic drug business and stands itself to the 9^th position in the growing market.  Now Daiichi can easily capture the whole pharmaceutical market of India, China and may be Asia very soon.  The question arises what will be the effect of this deal?  Definitely, when the outsiders are entering into our market - :

1) Their main aim will be maximum use of available natural resources and not rational use.
2) There will be more chance of monopoly in the pharma industry and Indian pharma companies may have to fight for their survival.
3) Another hidden aim of this acquisition deal is to use the Indian talent in good manner at cheap rate.
4) Another very important factor behind this deal is generic source of India.  India is best researcher and developer of generic medicines in the world.  May be the deal has hidden aim to capture this rich Indian generic store.

CONCLUSION

The Asian overall mergers and acquisitions market shows 3878 deals worth US $ 198.60 billion as on July 14, 2008.  China emerged as the largest market in the region with 1408 deals worth US $ 54.04 billion.   In the Asian market India is in the 3^rd place after China and Hong-Kong with 487 merger and acquisition deals worth $ 22.69 billion. After India, Singapore, South Korea, Malaysia, Indonesia & Philippines are on 4^th , 5^th, 6^th, 7^th, & 8^th place respectively.

In conclusion we can say that the acquisition deals are good but we have to think about nation's prestige and the national economy, not only personal interests like that of the CEO & MD of Ranbaxy Laboratory Ltd.  Let's wait and watch what the future has in store for the Indian Pharmaceutical Industry.

References:

Business World (Magazine),
Business Economy (Magazine),
Business Today (Magazine),
Business Standard (News Paper)
Economic Times (News Paper),
Times of India (News Paper),
Financial Express (News Paper),
The Hindu (News Paper).
 

Dr. Amit Kumar Dwivedi
Amity Business School
Amity University Rajasthan
Jaipur

Punit Kumar Dwivedi
Lecturer (Finance)
Bankatlal Badruka College of Information Technology
Hyderabad
 

Source: E-mail July 24, 2008

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