Mumbai: If Dilip Shanghvi, the 59-year old founder of Sun Pharmaceuticals Ltd, were to be tested for levels of confidence, he’d come close to a perfect 10. Shanghvi on Monday announced an all-stock deal to buy the troubled Ranbaxy Laboratories Ltd, hoping to turn it around and bring it under Sun Pharma’s fold.

The $3.2 billion deal with Daiichi Sankyo Co. Ltd is the second largest acquisition that the Indian pharmaceutical sector has ever seen, and an audacious one at that. Ranbaxy has been facing serious issues with exports to the US (the most important part of its business) since 2009. All its facilities exporting drugs to the US have been barred from doing so by the US Food and Drug Administration (FDA).

Last year, Ranbaxy pleaded guilty to felony charges related to drug safety in the US and paid $500 million in civil and criminal fines under the settlement agreement with the department of justice. Ranbaxy posted a loss of 160 crore for the December quarter of fiscal 2014.

But, Shanghvi loves to put things right and fixing Ranbaxy’s regulatory troubles will be his priority.

“For Sun, it is not the size of the deal which matters…it is the quality of business (we acquire) and its integration," Shanghvi said in his opening remarks in an early morning analyst call on Monday. He further said that Sun Pharma’s primary focus will be to comply with regulatory standards, a key issue facing Ranbaxy now, and make it healthy “before jumping into the business priorities".

The acquisition will make Sun Pharma the largest Indian generic drug maker and the fifth biggest in the world.

But Sun Pharma isn’t a new kid on the block. The company was founded in 1983 with a manufacturing plant in the small Gujarat port town of Vapi, a product line consisting of five therapies to treat psychiatric ailments and a marketing team consisting all of two people.

It’s only 30 years on that the firm is hitting its stride, having become one of the world’s most profitable generic drug makers—net profit for fiscal 2013 stood at 516.55 crore—and India’s most valuable drug maker. The company had a market value of 1.21 trillion at the close of trade on Monday, after its stock gained 2.68% to close at 587.25 on BSE.

Apart from India and the US, Sun Pharma has manufacturing facilities in Israel, Mexico, Hungary, Canada, Bangladesh and Brazil. In India, the firm has 10 manufacturing facilities and has eight plants in the US.

Shanghvi: The deal maker

Before concluding the Ranbaxy deal, Sun Pharma had made 13 acquisitions between the late 1990s and 2012, starting with the purchase in 1997 of Detroit-based Caraco Pharmaceutical Laboratories Ltd.

Not all of these were easy. In 2010, it acquired a 66%stake in Israel-based Taro Pharmaceutical Industries Ltd after a four-year legal battle with its founders—the Levitt family, a move that more than doubled its revenue in the US to $1.1 billion from $484 million. It offered to buy the balance 34% stake as well, but decided to drop the plan when some hedge fund investors did not agree with the valuations.

While each of these have been Shanghvi’s brainchild, he is not one to micro manage.

“Uday Baldota (senior vice-president of finance) was representing Sun Pharma in most of the dealings around the transaction. Mr Shanghvi was hardly around. Yet he has a very hands-on approach," said one of the officials involved in the transaction. He requested anonymity as the transaction is yet to be closed.

“He is a man of few words and very humble," said another official who has closely worked with him. This is probably why no one got wind of the deal till it was announced at 5am on Monday morning.

The officials added that to keep the deal under wraps, only top-level executives were involved. “It was only three to four months ahead of the deal announcement, that various teams got involved in the transaction."

“Sun Pharma did have concerns around the bans, but eventually they realized that in order to grow in the US market; production capacity has to be beefed up. The merged entity will facilitate higher production," said another official.

Bankers who know Shanghvi say he had an eye for detail and that helps him zero in on good deals. “He does not like to make a lot of noise about what he does and has the capability of picking out a hidden gem like Ranbaxy," one of the bankers said.

“There have been some deals in the past where no merchant bankers were involved, “ said a Sun Pharma official.

Building a pharma empire

Shanghvi was exposed to the pharmaceutical sector early in life. His father was a wholesaler of generic and branded pharmaceuticals in Calcutta, and that’s where Shanghvi learnt the ropes.

“He would help out at the shop after school and college hours...it was a logical step to get into pharmaceuticals," a Sun official said.

Today, Shangvi, with a $13.1 billion of personal wealth, is ranked the fifth-richest person in India and 83rd in the world as of 7 April, according to the Bloomberg Billionaires Index.

Apart from Sun Pharma, Shanghvi also has interests in publicly traded Sun Pharma Advanced Research Co., Natco Pharma Ltd and Bio Light Israel Life Sciences Investments Ltd.

A Gujarati by birth, the promoter of Sun Pharma, is also known to be an astute money manager.

With this deal, for instance, Sun Pharma will eventually see its revenue double, in return for a minor dilution in equity.

Shanghvi directly and indirectly through various subsidiary holds about 64% in Sun Pharma. Once Ranbaxy is acquired, his stake will reduce to 55% in the company. Meanwhile, the revenues of Sun will go up from $3 billion as on 31 March 2013, to $6 billion by 31 December 2014—the likely date for the deal being closed.

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