Indian Court Temporarily Stalls Sun Pharma’s Ranbaxy Deal

An Indian court temporarily stalled Sun Pharmaceutical Industries Ltd. (SUNP)’s $3.2 billion purchase of Ranbaxy Laboratories Ltd. (RBXY) as it considers a petition alleging insider trading.

Admitting a writ petition filed by a group of investors seeking a probe by the Securities and Exchange Board of India into any insider trading in Ranbaxy shares, the Andhra Pradesh High Court ordered an “interim status quo” according to a copy of the order obtained by Bloomberg News.

Ranbaxy shares surged 24 percent in the three trading days before the deal was announced and the stock’s daily average volume in that period jumped, data compiled by Bloomberg show. The high court order doesn’t appear to be a major problem, said Deven Choksey, managing director of Mumbai-based K.R. Choksey Shares & Securities Pvt.

“The regulator and the exchanges have robust surveillance systems and would have found out if it was insider trading,” he said. “I think the deal is well structured and this lawsuit will not fundamentally change the quantum or the structure of the deal.”

India’s biggest broker group last month said it would ask regulators to probe the trades made before the deal was made public. Krishnan Ramalingam, a spokesman for Ranbaxy, declined to comment on the court case or the allegations of insider trading. Sun in an e-mailed statement said the deal “does not violate insider trading rules.”

Highest Standards

“We hold ourselves to the highest standards of corporate governance and business ethics,” the company said in the statement. “With regards to the petition filed, the matter is sub judice and hence we cannot make specific comments, but we would be taking appropriate action as advised by our legal counsel.”

In the deal announced on April 7, the companies said Ranbaxy investors will get 0.8 share in Sun for every one of their shares, or about 457 rupees. Japan’s Daiichi Sankyo Co., which owns 63.5 percent of Ranbaxy, paid 737 rupees a share in 2008.

Ranbaxy shares fell 2 percent to 473.45 rupees in Mumbai and Sun Pharmaceutical declined 1 percent to 632.80 rupees.

Shanghvi started Sun Pharma in 1983, selling drugs to treat psychiatric illnesses and the company now has brands in areas including psychiatry, neurology, cardiology and nephrology.

Buying Ranbaxy will help Sun Pharma grow in markets such as Russia, Romania, South Africa, Brazil and Malaysia, according to an investor presentation. The company in its annual report has said its “focus markets for the future” would include Latin America, Russia, China and South Africa. Four of Ranbaxy’s plants in India are banned from exporting to the U.S.

To contact the reporters on this story: Sharang Limaye in Hyderabad at slimaye@bloomberg.net; Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editors responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net Sam Nagarajan

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