Will Daiichi Sankyo’s decision to sell its equity in Sun Pharmaceutical, and in the process exit the country, dent the India sentiment in Japan?
Reading the signals from Daiichi’s decision on Monday to sell its shares in Sun “entirely or partially”, industry-watchers say, it may not be a vote of no confidence against the Indian market, but it would temper the Japanese investors’ approach with much “caution”.
Daiichi ended up with close to nine per cent in Sun, following the recent closure on Sun’s $4-billion all-stock acquisition of Ranbaxy. The Japanese drug-maker was the erstwhile owner of Ranbaxy after it bought the company in 2008 for over $4 billion from its Indian promoters.
But its experience subsequently soured as the extent of Ranbaxy’s regulatory troubles with the US Food and Drug Administration revealed itself. Daiichi had to pay $500 million to settle criminal and fraud charges against it in the US market. Today, four of its plants are banned from exporting products to the US.
Daiichi was “scarred” by the experience, say industry sources. But the timing to exit Sun has them perplexed, as they had expected Daiichi to stay invested given the Sun Pharma promoter’s credentials in growing businesses.
Looking at it differently is Sujay Shetty, Executive Director and India Leader (Pharma, Life Sciences & Medical Devices) with PricewaterhouseCoopers (India). If India had given Daiichi a difficult experience, it also gave it a suitable exit option, and that’s not possible everywhere, he says.
But it is clear Daiichi had decided to exit India, following the Ranbaxy experience, he adds. But former head of multinational Pfizer (India), Kewal Handa says that Daiichi’s decision to exit Sun may be driven by its philosophy to not stay in a deal where it is a minority holder. Having witnessed several deals unfold during his tenure in Pfizer, Handa adds, Daiichi did manage to cut its losses, after all.
While it remains to be seen who picks up this stake, Handa is confident that as governance improves in India, more Japanese companies will come in. Shetty also points out that as confidence builds between the Governments of India and Japan, the graph of looking at India leans from neutral to mildly-positive.
Wait and watchA pharma-sector analyst, though, points out that Japanese drug companies will take a wait and watch approach. Daiichi was able to cut its losses, but at the end of the day, it lost money on this investment. And that will not be lost on companies looking for big buys here, he says.
There is a Japanese presence in the pharma sector, through Eisai or Takeda, and there will continue to be sourcing deals or even fresh manufacturing deals in business friendly States — but not at the level of optimism the two countries had shown in each other some years ago with trade agreement discussions etc, he adds.
Companies will possibly look to structure their deals differently, observes Adeesh Nargolkar, Partner with Khaitan & Co, adding that it is unlikely Japanese companies will recoil from India. In addition to structuring their deals legally, there could be more efforts into understanding the “practical” lay of the land.
Amitabh Malhotra, Managing Director of financial advisory group Rothschild India, says that the Daiichi incident is a one-off and does not define how Japanese investment companies look at India. Investors will keep the incident at the back of their mind, and may increase the due diligence or structure the deal so that the person selling the assets continues to stay with the business etc. But it will take a lot more than one Daiichi incident for India to be on the negative list, he says, confidently.