Cheap Money

The strange pandemic of hyper-acquisitiveness that has gripped the country claims another victim – the estranged son of Bhai Mohan Singh – ‘Ranbaxy’. Globalization stints a back-flip as the Japanese Pharmaceutical giant – Daiichi Sankyo Company (DSC) grabs 50.1% stake at a dizzying Rs 10,000 crore. The sell-out of the Indian pharma hero which should have been the last man standing triggers the unspoken doubt: Is the Indian story sustainable? As the Singh brothers (Malvinder & Shivinder Singh ) explain the “emotional decision”, with the exit of the blockbuster company – warning bells echo in the pharma corridors.

Ranbaxy (a fusion of Ranjit and Gurbax, its procreators’), name- can be traced down to 1952.Then, it was a 2.5 lakh purchase made by Bhai Mohan Singh from his cousins. For years the ‘magic pill’ has been setting milestones in its stead for pharma companies to follow: manufacturing generic drugs, ramping up market shares, creating value and selling drugs at cheap prices. Success was a daily story at Ranbaxy – until last week. Last week was a whirlwind of activity and the Rs 21,163 crore pharma major – DSC – was the cynosure. The Ranbaxy deal created the 15th largest drug maker globally, with a market cap of a whooping $30 billion in the $120 billion global generic pharmaceutical market’s, the Japanese firm which has powerful presence in the Japanese, North American and European markets, is a relatively recent entity. Merger of Daiichi and Sankyo in 2005, sellers of digestive pills and sylph drugs, respectively, went into the making of the global mutant.

From humble beginnings to the Ranbaxy global splash. DSC – by its first generic proprietary partnership – has brought the dreamless swoon of India Inc. to an abrupt halt. The corporate intercourse struck by business prudence of high-order has opened the flood-gate’s for a high-ended debate – Why now? Why now, when the domestic pharmaceutical sector has just started looking up and the company was doing so well.Rs 420 crore intellectual capital and 1,200 R&D scientists – the euphoria of the largest domestic is a dissatisfying spat by global standards. The appalled India, today muses whether the Rs10, 000 crore positive for Ranbaxy is a negative for the country. The fact which goes un-noticed is that – India is the cheapest drug destination in the world over only because Government has refused to do away with Drug Price Control Order.Ranbaxy and its likes might not have any incentive to keep prices down. The drugs are cheap because of Government policy and not in selfless service to the aam aadmi.The Indian pharma companies, under the protectionist economy, have done nothing but re-engineer big-pocket MNC pharma initiatives. It takes money and not sentiments to research-One reason why the country should gear itself for the “takeover buzz” to be household in its pharma sector. A few days from the deal and Ajay Piramal is already excited to exit at the “right price”. That must say something about R’baxy being a trendsetter.

The takeover, however indignant it might seem to the cash cows, brings the distorted saying to my mind – ‘Pride often goeth before fall and comes before a takeover’. It has long been observed and measured that more often than not, aquiring companies overpay when they bid for other companies. The personal pride at stake in winning a bid invested by those who run the acquirer often accounts for more of the acquisition premium than the synergies that are supposed to come from a takeover. In anecdotal evidence – It was a matter of Japanese national pride back in 1989 when Mitsubishi Estate acquired the New York Rockefeller Center, a name and building symbolic of American capitalism and Sony was gobbling up Hollywood. These accorded the status on a national historical landmark. By the same token, some Americans felt their nation had been humbled and the congressmen were up in arms. Meanwhile the vendors were laughing all the way to the bank. In a repeat of buy-high sell-low Mitsubishi sold it in 2000. It is becoming apparent that national pride is an even costlier luxury than personal pride in takeover situations. Earlier exhibitions of national pride were mild compared with Indian outpourings when Tata Steel bid top dollar for the British/Dutch steel combine Corus – an acquisition which came hard on the heel of the Indian-born Mittal family’s acquisition of Arcelor, Europe’s largest steel group. The nationalistic instinct was catching up.2 weeks after the Tata buy, the Birlas showed that they were not going to be outdone. Their Hindalco bought Canadian-listed Novelis, formerly an Alcan subsidiary, for $6 billion.

India is a capital-short nation with steel output one ninth that of China. Should it have paid over-the-odds for a company based in low-growth Europe when India’s own record of investment both in manufacturing and steel-using infrastructure was so weak? The record of 100-year-old Tata which was expanding by costly acquisition was a contrast to Korea’s Posco, which was less than half its age and had become the world’s number three producer and a technology leader, without having to make huge and costly bids. The Indian media egged on, totally missing this apt comparison.

We cannot deny. The recent global takeover fever is everywhere. Coming back to Ranbaxy – It is a marriage of Convenience for the Singh brothers who now claim to fund healthcare. It is a reminder to the country that the conquistador, in many cases, is the conquered. With the paterfamilias of a tried and tested prescription for growth gone, Indian pharma is shrouded by dubiety. Is the sellout a landmark deal or the beginning of a long show-down? Whether the prey is Japanese bad business or Indian fallout? – Nothing can be said as of now.

Bhavna Tripathy

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