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Business News/ Companies / News/  Competition Commission extends Sun Pharma-Ranbaxy probe to new stage
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Competition Commission extends Sun Pharma-Ranbaxy probe to new stage

Antitrust watchdog to seek public feedback, hear from companies again as part of its second-stage inquiry

On 6 April, Sun Pharma agreed to buy Ranbaxy for $3.2 billion in stock from its Japanese parent Daiichi Sankyo in a deal that would create the world’s fifth largest generic drugmaker. Photo: BloombergPremium
On 6 April, Sun Pharma agreed to buy Ranbaxy for $3.2 billion in stock from its Japanese parent Daiichi Sankyo in a deal that would create the world’s fifth largest generic drugmaker. Photo: Bloomberg

New Delhi: India’s antitrust regulator has ordered a second-stage investigation into the merger of Sun Pharmaceutical Industries Ltd and Ranbaxy Laboratories Ltd, citing the risk that the deal could harm “national interest" by resulting in significant market domination by the combined entity.

This is the first time the Competition Commission of India (CCI) has decided on a second-stage inquiry, which follows a preliminary investigation of a deal, and raised such an objection. The watchdog will deliver a final ruling after hearing from the companies again and seeking public feedback on the transaction.

The possible ripple effect of the merger on prices of life-saving, essential medicines in the Indian market had prompted the antitrust body to issue a show-cause notice in July, asking the two companies why a public investigation should not be ordered into the deal.

On 6 April, Sun Pharma agreed to buy Ranbaxy for $3.2 billion in stock from its Japanese parent Daiichi Sankyo Co. Ltd in a deal that would create the world’s fifth-largest generic drugmaker. It also agreed to take on $800 million of Ranbaxy’s debt.

The merger will create India’s biggest drugmaker with an 8.5% share of the pharmaceutical market, worth an annual 76,000 crore by sales. Under India’s merger and acquisition (M&A) rules, companies need CCI’s approval if the combined assets of the two entities are worth more than 1,500 crore or their combined revenue amounts to more than 4,500 crore in India.

Spokespersons for both Sun Pharma and Ranbaxy Laboratories said the companies wouldn’t comment on CCI’s move.

According to two people familiar with the matter, the antitrust body’s main concerns are about the 46 drug formulations that will constitute the merged entity’s portfolio and in which it will have a significant presence in the market. Out of these 46 drug segments, the prices of five are regulated by the government.

“In the rest of the segments, market domination is a genuine worry," said a government official familiar with the development. “The commission has decided to monitor the prices of other crucial drug segments to ensure the company does not stop manufacturing the drug altogether if the price is too low or increase prices further in case of expensive drugs."

The official, however, said the merger itself wasn’t under threat. “Frankly, this will just delay the merger by a few months. It will eventually go through despite objections from stakeholders."

The commission now has a total of 180 days to take a call on the deal. Section 29 of the Competition Act says CCI can proceed to investigate a combination where it is of the opinion that the same “ is likely to cause, or has caused an appreciable adverse effect on competition within the relevant market in India".

Another government official confirmed that a second-stage investigation had been ordered and added that the commission will issue a notice to the companies in the next four days, and invite responses from them.

“The companies will be asked to publish details of their agreement in newspapers and public comments would be invited on the same," this person said. The commission will then call for additional information from the companies, if it thinks it needs more clarity. Once these additional comments are in, the CCI will take a call on the deal within 45 days after seeking public feedback

On 11 July, the National Stock Exchange and BSE cleared the deal. It still needs to be cleared by capital market regulator Securities and Exchange Board of India, CCI and various courts.

Under the terms of the deal, shareholders of Ranbaxy will receive four shares of Sun Pharma for every five shares they hold. Analysts were expecting the merger to be completed by the end of the year.

Ranbaxy shares fell 0.73% to 648.75 and Sun Pharma shares fell 0.35% to 861.80 on the BSE on a day the benchmark Sensex climbed 0.44% to 26,560.15 points.

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Published: 28 Aug 2014, 12:10 AM IST
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