India's Sun Pharmaceutical Industries said it will buy Ranbaxy Laboratories in a $3.2 billion all-share deal, creating the world's fifth-largest generic drug maker from two firms struggling with quality issues in the lucrative United States market.
Ranbaxy, India's biggest drugmaker by sales and 63.4 percent owned by Japan's Daiichi Sankyo Co, is banned from exporting drug ingredients to the U.S. Sun Pharmaceutical's Karkhadi plant is also barred from shipping products by the U.S. Food and Drug Administration.
India's pharmaceutical industry, which supplies more than 20 percent of the world's generic drugs, according to PricewaterhouseCoopers, suffers from a lack of oversight including a severe shortage of regulatory inspectors.
Daiichi has dispatched personnel and promised to provide the necessary support to resolve lingering quality problems at Ranbaxy, in which it first invested in 2008.
Under terms of the agreed deal, Ranbaxy shareholders will get 0.8 of a Sun Pharmaceutical share for each Ranbaxy share they own. Daiichi Sankyo said in a statement that it will hold a stake of about 9 percent in Sun Pharmaceutical after the deal.
The deal values Ranbaxy shares at 457 rupees apiece, representing an 18 pct premium to their 30-day volume-weighted average share price. Ranbaxy shares rose by nearly a quarter over the previous three sessions to close at 459.55 rupees on Friday.
Tokyo analysts said the move doesn't necessarily signal a pullback from India by Daiichi Sankyo.
"I wouldn't call this an exit. It's an ownership transfer," said Jefferies & Co analyst Naomi Kumagai. "Another company will take over control for them of a place that had a lot of issues. In that sense, it should be a good thing."
In a separate statement, Daiichi Sankyo said the U.S. Attorney's Office in New Jersey had issued an administrative subpoena to Ranbaxy seeking information related to the company's Toansa plant in India. Ranbaxy is cooperating with the information request.
Sun Pharmaceutical is holding a briefing on the deal in Mumbai from 8 a.m. (0230 GMT) on Monday, while the Japanese company will hold a news conference at 4 p.m. in Tokyo (0700 GMT).
Shares in Daiichi Sankyo climbed as much as 5 percent in Tokyo to a 2-1/2 month high of 1,844 yen.
Citigroup and Evercore Partners are advising Sun Pharma, while Daiichi is being advised by Goldman Sachs Group and ICICI Securities is the financial adviser to Ranbaxy, the statement said.