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Apr 30, 2014

Indian Court Sets Temporary Halt to Sun Pharma's $4B Ranbaxy Acquisition

  • An Indian court is temporary halting on Sun Pharmaceutical Industries’ planned $4 billion acquisition of Ranbaxy Laboratories from Daiichi Sankyo while it decided whether to investigate a formal complaint alleging illegal insider trading.

    The Andhra Pradesh High Court on Friday made an “interim status quo” declaration, effectively freezing action on the acquisition. The temporary action came in response to a petition filed a day earlier by two investors, Tammali Shiva Kumar and Undi Venkatasubbaraju. The investors seek a halt to the deal by the government agency that regulates stock trading, the Securities & Exchange Board of India (SEBI), as well as India’s two principal stock exchanges, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

    The court is awaiting responses to questions about the deal it has asked of both companies, as well as the agency, both exchanges, and Silver Street Developers, a limited-liability partnership owned by two subsidiaries of Sun Pharma. At issue is whether entities with prior knowledge of the deal made illegal profits of Rs. 285 crore ($48.45 million), several Indian newspapers reported.

    The petitioners told the court that Silver Street Developers and Sun Pharma "were in possession of price-sensitive information as they were actively involved in the merger negotiations," adding: "[The] high volume of transaction of shares and the increase in the price of shares just three days before the announcement of proposed merger clearly demonstrates that there has been extensive trading by people who had prior knowledge about the proposed merger.”

    The petitioners said over 3.74 crore (37.4 million) Ranbaxy shares shares were transacted on BSE and NSE from April 2 to April 4: "This was about five times the daily trading volume which was 23.15 lakh shares per day."

    Sun Pharma has denied any illegality. While Silver Street bought company shares before the acquisition announcement, the brother-in-law of Sun’s chairman Dilip Shanghvi "is not and was not” a partner in Silver Street, Sun said in a statement.

    “The Sun Pharma management said the position in Silverstreet Developers was taken post the deal” during an April 16 conference call with analysts following the April 7 announcement of the acquisition, when analysts raised the issue of alleged insider trading, Surajit Pal, an analyst with Prabhudas Lilladher who tracks pharma stocks, told The Economic Times of India.

    “SEBI should have been more active, but unfortunately it is mum on this issue," Pal said.

    Sun and Ranbaxy are two Indian generic drug developers looking to combine into the subcontinent’s largest biopharma through an all-stock deal. The deal has been approved by the boards of Sun, Ranbaxy, and Daiichi Sankyo, which acquired a 63.9% controlling stake of Ranbaxy in 2008 for $4.2 billion. The Sun and Ranbaxy boards have recommended their shareholders approve the deal.

     


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