Sun rises on Ranbaxy
Touted as a master turnaround strategist, Shanghvi's acquisition of Israel's Taro Pharma in 2007 for $260 million haunted him for a good three years as major shareholders demanded higher valuations and attempted to thwart the deal.
It isn't easy to cast Dilip Shanghvi, 58, Chief Executive Officer of Sun Pharmaceutical Industries Ltd into a classic CEO mould. He is one of India's most reticent CEOs, but is the most sought-after by the media. He hardly socialises, but is the darling of investors. He is soft spoken and calm, but raises a storm by his audacious acquisitions in India and across the globe.
Sun Pharma's $4 billion (Rs 19,229 crore) acquisition of the Gurgaon-based $1.7 billion (around Rs10,000 crore) Ranbaxy Laboratories on April 7 was his 16th buy in the past two decades. Shanghvi told India Today that Sun Pharma had a "proven track record" of investing the necessary resources to successfully integrate acquired companies.
"We believe in the inherent worth of Ranbaxy. We are unwavering in our commitment to meet necessary compliances," he said.
Touted as a master turnaround strategist, Shanghvi's acquisition of Israel's Taro Pharma in 2007 for $260 million haunted him for a good three years as major shareholders demanded higher valuations and attempted to thwart the deal. Shanghvi persisted and transformed Taro into an important revenue generator for Sun in the US. He also took complete control of US firm Caraco Pharmaceutical Laboratories in 2011 and bought Dusa Pharmaceuticals in 2013, adding to his company's gains in the US. At present, Sun gets 54 per cent of its total revenues of $2 billion from the US.
But it was the acquisition of Ranbaxy, mostly through an exchange of shares, that made him hit the headlines in more ways than one. First, the deal makes the combined entity the largest pharmaceutical company in India, with a combined revenue of $4.2 billion (in 2013) and the fifth largest generic drug companies in the world. Second, it has come at a time when business sentiment is at its lowest and mergers and acquisition deals have dropped significantly to $2.6 billion in February 2014 as compared to $3.3 billion a year ago, according to research and advisory firm Grant Thornton. Third, Ranbaxy, which was sold to Japan's Daiichi Sankyo in 2008 for $4.6 billion, and kicked up a huge debate on foreign ownership of Indian pharma companies, is getting back into Indian hands. Moreover, Sun is paying 61 per cent less for Ranbaxy than what Daiichi Sankyo paid in 2008, revealing Shanghvi's astuteness to spot opportunities and think ahead of his peers. Finally, the deal also revealed the grit of Indian business entrepreneurship to take over a troubled firm with an intent to turn it around. For many, the deal is a reminder of Anand Mahindra-owned Tech Mahindra's takeover of the beleaguered Satyam Computer for $480 million in 2009 through a government-facilitated auction, and the latter's subsequent turnaround. Not surprisingly, Shanghvi counts Mahindra as a role model in managing and transitioning businesses.
"Dilip bhai (as Shanghvi is often addressed by those who know him closely) is a man of immaculate planning and extremely calculative," says Murali Nair, a partner with consulting firm Ernst & Young. "His hands-on approach will facilitate Ranbaxy's turnaround."
Insiders say that Sun Pharma did a limited amount of due diligence on Ranbaxy before it bought it. "We have to evaluate Ranbaxy better. We have seen more of the outside than the inside of the company," said a source, adding that Food and Drug Administration's (FDA) concerns about Ranbaxy, which was barred from exporting drugs to the US after it found lapses in manufacturing standards in its facilities in Toansa, Mohali, Dewas and Paonta Sahib, will be Sun's primary focus. Shanghvi is expected to focus on the manufacturing and supply chain divisions of Ranbaxy which have been haunted by problems, and effect some big changes there, both in terms of people and processes.
"Ranbaxy needed a mature owner who is hands-on," says Navroz Mahudawala, MD of Candle Partners, a boutique consulting firm. Ranjit Shahani, Vice Chairman of Novartis, an MNC pharma company called him a 'strategic' leader, ably assisted by Israel Markov, former CEO of the world's largest generic pharma company Teva, whom Shanghvi hired as chairman of Sun Pharma in May 2012.
Sharp, hands-on approach has been Shanghvi's hall mark all along in a career which started at his father's pharma distribution company in Kolkata in the late seventies after he graduated in Commerce from the University of Calcutta. In 1983, he started Sun Pharma with Rs 10,000, a sum he borrowed from his father. In three decades, Sun pharma has grown into a Rs 11, 239 crore (around $2 billion) company, with a market capitalisation of Rs 1.3 lakh crore as on April 9. For many, what makes Shanghvi different is his thrust on value for shareholders. "He doesn't go by size, but by what value a particular deal would bring to the table," says a company official.
Sun has 26 manufacturing sites, 14,000 staff worldwide and over 1,000 marketed products. As Sun continues to grow, so has Shanghvi's fortunes-as on April 11, he is the 77th richest man in the world and fourth richest in India, with his personal wealth amounting to $13.6 billion , according to Forbes.
Originally hailing from Gujarat, Shanghvi has friends in political circles too. Among the hundreds of businessmen and well-wishers who attended his son Aalok's wedding some three years back was Narendra Modi, Gujarat's Chief Minister and a prime ministerial candidate. Aalok joined Sun Pharma in 2007 and is heading the international business division. Shanghvi's daughter Vidhi, a Wharton School, Pennsylvania, alumnus, is also associated with some projects for Sun.
Having bagged Ranbaxy, Shanghvi will have an uphill task setting things right at the former. "It's all about winning the confidence of the regulators and investors," says Shahani. "The success will now depend on speedy integration of the two companies, and boosting the morale of the Ranbaxy staff."
A movie buff, Shanghvi is particular that he watches films on the first day of their release. A Mumbai-based scribe recalls how he asked Shanghvi if he had watched Batman: The Dark Knight Returns, which was showing in the city theatres then. "First day, first show," was Shanghvi's prompt reply. "I loved the music." Perhaps his love for films explains his perfect sense of timing and drama when it comes to business.