The $3.4 to $4.6 billion planned sale of Ranbaxy Laboratories, India’s largest pharmaceuticals company, to Daiichi Sankyo of Japan that was announced this morning marks a huge milestone in the internationalization of Indian companies.
The recent trend has been for Indian companies to take over foreign businesses – ranging from Jaguar cars to Corus steel – but this is the first time that a major successful Indian company has suddenly agreed to sell control to an unassociated foreign company.
This parallels Anil Ambani’s current negotiations to merge his Reliance Communications telecom company with MTN of South Africa. Sunil Mittal, the entrepreneur who built Bharti Airtel into one of India’s two largest telecom companies (Reliance is the other), could not stomach losing direct India-based control, which was partly why he walked away last month from the deal.
This points to the true internationalization of Indian companies, because two leading business families have now shown they are willing to sell as well as buy abroad. It must be making Mittal wonder if he did the right thing in letting his archrival step into a deal that could create a real global telecoms company
Indian families tend to treat their main businesses as treasures that are to be held until, as often happens, they decline after the second or third generation. They frequently take in foreign equity partners to help them grow, but a sense of pride combined with insecurity prevents them from selling out.
Malvinder Mohan Singh, Ranbaxy’s chief executive and managing director – and the head of the Singh family that founded the company – has therefore made Indian corporate history. His decision to sell will be closely questioned and debated as people ask whether he has done the right thing – and whether he has some as yet unexplained motive.
His family will sell its controlling 34.8% stake in Ranbaxy to Daiichi, which will make an open offer for a further 20%, in accordance with Indian take-over rules. Singh will remain the chief executive and become chairman, with a five-year term, as well as joining Daiichi’s senior global management. This will make Singh an employee – albeit a rather exalted one – of the Japanese company.
Today he said that Ranbaxy had to sell in order to “clinch the deal” – which sounds as though Daiichi pushed a hard bargain, and raises questions about why Singh was so desperate to do the deal. “This is not a sell-out but a strategic deal to position the company and transform us to the next level,” he said, slightly implausibly. He added that the future of the company was more important than family ownership.
Singh chose to describe the link-up as an “association” that, he said, would put Ranbaxy “on a new and much stronger platform to harness our capabilities in drug development, manufacturing and global reach.” It was “a significant milestone in our mission of becoming a research-based international pharmaceutical company.” The main immediate pharma advantage is that Ranbaxy will have access to Daiichi’s branded drugs expertise while contributing its low-cost production facilities and global distribution. Analysts say that consolidation of the international generics business has been inevitable and it would have been difficult for Ranbaxy to grow significantly on its own.
Ranbaxy was started by Singh’s grandfather and then built into one of the world’s top ten producers of generic drugs by his late father Parvinder Singh. With manufacturing operations in 11 countries and sales operations in nearly 50, it is now run by Malvinder Mohan Singh with his brother, Shivinder Mohan Singh, who concentrates on other family businesses in healthcare. Growth has come partly from an aggressive international take-over and today’s proposed deal values the company at $8.5 billion.
The Singh family will receive 34.8% of that – almost $3 billion – and it is assumed that at least part of that will be used to develop Fortis’s hospitals and other healthcare businesses and a fast-growing financial services company, Religare, that is controlled by the family and advised on the Daiichi deal.
The deal is the second-biggest foreign sale of an Indian company. Last year Vodafone of the UK bought control of a telecoms company then called Hutch Essar by buying a controlling stake from Li ka Shing, the Hong Kong entrepreneur.