Ranbaxy Open Offer

The above Open offer from one of the most prestigious and front line company of the country should also be the most perfect and an example to follow from the regulatory compliances & corporate governance point of view. Kindly note the following observation: a) Clause 1.5 states that the “Independent Directors” shall be nominated by the 2 groups. This certainly is not the best way to demonstrate the independency of such Directors.b) Clause 1.5 states that the sellers shall have the right to appoint 4 Directors! Under what capacity? They will not be even a shareholder. What about the rights of 1.84 lacs shareholders? Is it not an infringement of their rights? c) Clause 1.7 gives the price of shares for 26 weeks and 2 weeks preceding the offer. There is a significant appreciation in the price towards the Offer date. As in all such cases, I request that such price movement should be investigated.d) Clause 3.3 while calculating the ‘Emerging Voting Capital’ has excluded 238 lacs warrants to be issued to the Acquirers. It should be clarified that the warrants so issued shall not be converted into equity shares within the time frame stipulated (15 days after the closure of the offer) as prescribed under regulation. In case the Closure of the offer gets delayed for any reason and these warrants get converted within the above time frame, the Size of the Open offer shall be suitably revised upwards.e) Clause 4.1 gives the shareholding percentage of the Acquirers but fails to state that even after acquiring 58.09% shares they will still be left with warrants which will entitle them to acquire further 238 lacs shares.
Recommendation-buy to tender in the open offer
The Daiichi Sankyo-Ranbaxy transaction, one of the biggest among generic deals so far, at a market capitalization of about Rs 20356.51 crore and sales of Rs 6692.67crore for FY08. Ranbaxy EPS on December FY08 is 20.76 which is likely to move to 24.70x in December FY09. At the current market price of Rs 523.5 the stock is trading at P/E of 25.22 and P/E of 21.19x in FY09. At the effective price of Rs 392.73 the P/E will be 15.90x for FY09 which means that at Rs 392.645 it becomes a good value buy.