Sun Pharmaceuticals Industries' proposed acquisition of Ranbaxy Laboratories Ltd in an all-stock transaction, valued at over $3.2 billion, will have to pass the scrutiny of the Competition Commission of India (CCI), which has been mandated to clear M&A deals above specified thresholds.
CCI's approval is required as per its combination regulations when the enterprises’ value of the Indian entities concerned is more than Rs 1,500 crore or the combined turnover is more than Rs 4,500 crore.
The Sun Pharma-Ranbaxy deal satisfies this criteria for CCI scrutiny. According to a pharmaceutical market research company, AIOCD AWACS, the 9.2% combined market share of Sun Pharma (5.4%) and Ranbaxy (3.8%) will be higher than the nearest rival, Abbott (6.5%), in the Rs 75,000-crore highly fragmented domestic drug market, making Sun Pharma country's biggest organised drug company by a considerable margin.
Competition law experts said the Sun-Ranbaxy filings under the combination regulations will be under the revised fees of Rs 50 lakh for the Form II filing, which is the longer version of form requiring greater level of reporting on any proposed M&A deals.
"If two involved entities are from the same line of business, as appears in this matter, it should ideally be a Form II filing. Based on the information supplied to the CCI, the commission can either clear the deal or seek more information or can also refer the matter to the direct general of investigations," explained MM Sharma, head of competition law and policy at Vaish Associates, a law firm.
The purpose of combination regulations is to ascertain if the combined entity has acquired a market share in the relevant market, big enough to scuttle competition.
According to Gautam Shahi, senior associate in J Sagar Associates, this may be one of the most exciting cases that CCI has dealt with till date when a combination notice is filed. "It will be interesting to see how CCI defines the relevant market in this industry as a demand substitutability analysis will lead to multiple relevant market definitions and then CCI will have to analyse the presence of Sun Pharma and Ranbaxy in each of these relevant markets,” Shahi said.
Experts said Sun Pharma will now have 30 days to file all the relevant information about the acquisition with the CCI as the proposed transaction has been unanimously approved by the Boards of directors of Sun Pharma,