When two people fight, it is the third person that gets the advantage. That is precisely what has happened in Ranbaxy Labs, one of India’s most respected pharma companies. The breaking news today is that the promoters of Ranbaxy have sold their stake to a Japanese company – Daiichi Sankyo. Yes, the two brothers – Malvinder Singh and Shivinder Singh, who have a 34.8% stake in Ranbaxy Labs have formally agreed to sell their entire stake to Japanese major Daiichi Sankyo.
This sell of stake means a complete exit of the promoters of the company. Late Bhai Mohan Singh who made Ranbaxy into what it is today was one of the most respected industrialists in India. Having founded Ranbaxy single handedly into the first Indian MNC, it is unfortunate that today, the same grandsons of this patriarch are exiting from the company. The ongoing family feud is stated to be reason.
The stake sell, expected at over 25-30% premium over today’s last traded price, makes perfect sense. Once could argue that the price is too high but that is precisely the way in which the cookie crumbles. If it is a foreign company taking over a very well reputed and established company, then a premium of 25-30% is routine. The same had been the case when Holcim had taken over the stake of ACC and Gujarat Ambuja.
The Japanese major will also make a mandatory open offer, as per the Indian laws, to buy an additional 20% stake in the company as also subscribing to 4.63 crore shares and 2.38 crore warrants at Rs.737 per share. At the end of this all, Daiichi Sankyo plans to have a controlling stake of above 51% stake in the Indian company.
The Board of Ranbaxy had decided to issue 462,58,063 equity shares of Rs.5 each at a premium of Rs.732 per share as also 238,34,333 warrants to be convertible at Rs.737 per share to Daiichi. This will increase the paid up equity of Ranbaxy from Rs.186.62 crore to Rs.221.67 crore, post warrant conversion. If Daiichi is able to have a 20% stake in the open offer (which is most likely) their stake would go up to 65%.
Post issue of equity by Ranbaxy to Daiichi, an open offer for about 8.88 crore shall be made by Daiichi for Ranbaxy shares at Rs.737 per share. Presently, about 18% is held by FIIs while, about 20% is held by Insurance companies and about 27% is held by the public, including mutual funds. It is expected that everyone would participate in the open offer as share price of Rs.737 is perceived to be quite attractive for any existing shareholder to get an exit route from the stock and would also, at the same time, give good arbitrage play.
Presently, Ranbaxy is holding a tad below 15% in Orchid Chemicals, Jupiter Bio and Krebs Bio while 45% in Zenotech Laboratories. Due to indirect acquisition of stake in Zenotech by Daiichi, even Zenotech would see open offer coming in the stock at a price to be determined under applicable SEBI guidelines.
As mentioned earlier, the reason for the exit, in all probability is the ongoing family feud. It all began in 1990, when Bhai Mohan Singh apportioned assets in 1990. His eldest son – Parvinder Singh got Ranbaxy, middle son Manjit got Montari Industries and youngest son, who was the apple of his eye, got Max India. In 1993, Bhai Mohan Singh was ousted in a bitter boardroom battle by Parvinder, who later threw out his father from the Board after disagreements over company management grew. Parvinder expired in 1999 and his successor, D.S.Brar took the company to greater heights.
When Bhai Mohan Singh died, he bequeathed most of his wealth to Analjit who was also made the sole legal heir to carry out all court battles. Manjit was given a gift of Rs.14 crore while grandchildren – Malvinder and Shivinder, who are now the promoters of Ranbaxy, were given Rs.5 lakhs each. So now, for the past few years, a bitter legal battle is raging between Manjit, Malvinder and Shivinder on one side and Analjit on the other side. The bone of contention is the ownership over Ranbaxy and assets like the Aurangzeb Road home where Bhai Mohan Singh had resided. Though an out-of-court settlement has been planned for some time now, it has just not happened.
And selling their stake was probably the best way out is what the grandsons of Bhai Mohan Singh, would have thought. This ends their continuous stress but shows how the new generation of today, after having got things on a platter, just does not have enough respect for anything – neither for the reputation of Bhai Mohan Singh nor for effort that has gone over decades for making Ranbaxy what it is today. The first Indian MNC would now become a Japanese company.
After the stake sale, it is expected that the bothers will also distribute the other group companies within themselves. It is widely talked that Fortis Healthcare would come under Malvinder Singh and Religare Enterprises would come under Shivinder.
All eyes would also now turn towards Cipla where the current Chairman and Managing Director, Dr.Hamid had also stated some time ago that he would soon step down. Would that mean a handing over of the reins to the chosen heir or stake sale?
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