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Business News/ Market / Stock-market-news/  Sun Pharma, Ranbaxy shares decline after court stalls merger
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Sun Pharma, Ranbaxy shares decline after court stalls merger

Purchase of Ranbaxy shares by Silverstreet Developers, a Sun Pharma subsidiary, comes under scrutiny

The Andhra Pradesh high court on Tuesday asked the stock exchanges and Sebi not to approve the merger deal between Sun Pharma and Ranbaxy, untill allegations of insider trading involving Sun Pharma’s promoters are investigated. Photo: Hemant Mishra/MintPremium
The Andhra Pradesh high court on Tuesday asked the stock exchanges and Sebi not to approve the merger deal between Sun Pharma and Ranbaxy, untill allegations of insider trading involving Sun Pharma’s promoters are investigated. Photo: Hemant Mishra/Mint

Mumbai: Shares of Sun Pharmaceutical Industries Ltd and Ranbaxy Laboratories Ltd fell after the Andhra Pradesh high court on Tuesday temporarily halted the proposed merger between the two companies until allegations of insider trading involving Sun Pharma’s promoters are investigated.

The high court, acting on a writ petition filed by some investors, asked the stock exchanges and capital markets regulator Securities and Exchange Board of India (Sebi) not to approve the merger deal announced in April.

Shares of Sun Pharma fell 1.22% to 631.55 on BSE, while India’s benchmark Sensex dropped 0.22% to 22,417.80 points. Shares of Ranbaxy declined 2.3% to 472.10 on Wednesday.

Silverstreet Developers Llp, a Sun Pharma subsidiary, purchased a large volume of Ranbaxy shares just a few days before Sun Pharma and Ranbaxy announced an all-stock merger deal valued at $3.2 billion.

There is a possibility that executives at Silverstreet had access to information about the transaction that were not disclosed publicly, said Anoop Narayanan, a Mumbai-based corporate lawyer and founder of ANA Law Group.

“Prima facie, it appears from the reports that the people on board at Silverstreet are apparently closely related to Sun Pharma’s top management and people in such roles are likely to be involved in the decision making of Sun Pharma," said Narayanan. “Thus, there is a possibility that Silverstreet may have been in possession of the unpublished price-sensitive information prior to its announcement. If these are proved, the facts of this case will satisfy the two key aspects that triggers action under Sebi regulations on insider trading."

A group of investors, who approached the high court last week, alleged that Sun Pharma promoters or people directly related to Sun Pharma, who were privy to the soon-to-be-announced merger, were involved in the share purchase and profited from it, violating Sebi’s insider trading rules.

“There shall be interim status quo as prayed for," justice P. Naveen Rao said in response to the petition. Mint has reviewed the interim order.

Sun Pharma has not received any communication regarding the order, a company spokesperson said.

“The matter related to purchase of shares of Ranbaxy Laboratories Ltd does not violate insider trading rules," he said in an email, adding that the company would take appropriate legal action.

Ranbaxy didn’t offer any comment.

The writ petition was filed by two individual investors, Tammali Shiva Kumar and Undi Venkatasubbaraju, seeking that the court restrain any scheme of amalgamation or merger during the pendency of the petition.

The petitioner alleged insider trading in Ranbaxy shares before announcement of the deal on 6 April. The petitioners also sought action against Sun Pharma and wholly owned arm Silverstreet Developers.

The court has issued notices to Sebi, BSE, the National Stock Exchange, Sun Pharma, Ranbaxy and its owner Daichii Sankyo Co. Ltd, and Silverstreet to respond to the petitioners’ charges.

Ranbaxy’s shareholding disclosure to stock exchanges shows that Silverstreet Developers bought a 1.64% stake in the company in the December and March quarters.

Silverstreet Developers, a limited liability partnership firm with Sun Pharmaceuticals’ Sudhir Valia as one of the partners, picked up a 1.41% stake in the Indian generic arm of Japanese drug maker Daiichi Sankyo Co. Ltd, the Business Standard newspaper reported on 10 January.

“Silverstreet had previously bought these shares as a matter of investment. It’s very important for us to state and for you to note that Sun Pharma had no access to any non-public information of Ranbaxy when this investment was done by Silverstreet," the Sun Pharma spokesperson wrote in an emailed response on Wednesday.

Valia is an executive director and brother-in-law of Sun Pharma managing director Dilip Shanghvi. Valia is also one of the promoters of Sun Pharma.

“Sudhir Valia has not purchased any shares of Ranbaxy," Sun Pharma spokesperson said.​

Valia is not and was not a partner at Silverstreet Developers when purchase of shares of Ranbaxy Laboratories was effected by that company, Sun Pharma had said on 9 April.

“Silverstreet Developers Llp has two partners. Both are 100% subsidiaries of Sun Pharma," Sun Pharma said. “Hence, all the benefits flowing from the investment in Ranbaxy shall accrue to Sun Pharma."

Silverstreet Developers’ three directors at present includes Raksha Sudhir Valia and Sanjai Bhikalal Valia, close relatives of Sudhir Valia.

“Although it is difficult to prove that Silverstreet Developers had price-sensitive information prior to the announcement of the merger, it seems quite possible considering the close personal and corporate relationship that it had with Sun Pharma," a consultant said on condition of anonymity.

“Since the matter is in the court now, it is expected that competent authorities including Sebi and the stock exchanges will act judiciously to investigate the details of the alleged issue as per the court’s findings and direction," said Ranjit Kapadia, senior vice-president, institutional research, and a sector analyst with Centrum Broking Ltd.

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Published: 30 Apr 2014, 10:59 AM IST
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