1. I am recommending to buy Ranbaxy as the Daiichi-Ranbaxy deal is valued at 4.3 times sales and 21 times EBITDA on historical earnings. The stake buy is expected to be completed by March 2009. Ranbaxy is expected to become a subsidiary of Daiichi.Daiichi will now own 50.1% stake in Ranbaxy. However Ranbaxy brand name will not change and the company will remain listed. Daiichi will fund the stake buy via internal accruals and debt. However the existing management will continue under its current MD, Malvinder Singh, who will later be the Chairman of Board. The geographical presence of Ranbaxy and Daiichi will together be enhanced by this deal and Ranbaxy will get a much wider product offering and cheap and good quality generics. In view of above Ranbaxy now has price targets of Rs 640 and Rs 700 now.

2. Daiichi plans to make an open offer for existing Ranbaxy shareholders at Rs 737 per share valuing Ranbaxy at USD 8.5 billion in market cap.The open offer price is attractive for investors. It is a reasonable premium and all investors must accept the offer and tender their shares.

3. The Daiichi deal will help the company emerge as a global research firm. The Ranbaxy deal will not impact the Indian pharma industry materially.Ranbaxy has a market cap of USD 5 billion approximately.The company will be debt-free after the deal and get USD 1 billion in cash.


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