Sun Pharma Climbs After Court Removes Stay on Ranbaxy Purchase

May 25, 2014 11:56 pm ET

May 26 (Bloomberg) -- Sun Pharmaceutical Industries Ltd. gained the most in a month as an Indian court removed the stay on its $3.2 billion purchase of Ranbaxy Laboratories Ltd. after putting it on hold to study a petition alleging insider trading.

Sun shares climbed as much as 3.9 percent, headed for the biggest gain since April 9, to 607.25 rupees before trading at 599 rupees at 9:19 a.m Mumbai time. Ranbaxy gained as much as 4.5 percent.

The Andhra Pradesh High Court disposed of the stay because India’s capital market regulator is investigating the insider trading allegations, Vivek Reddy, the lawyer for the petitioners, said on May 24. The court in April admitted 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 before the deal was announced.

The court at that time ordered an “interim status quo” on the deal, 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 trading volume in that period jumped, according to data compiled by Bloomberg.

India’s biggest broker group in April said it would ask regulators to probe the trades that occurred before the deal was made public. A two-judge Supreme Court panel on May 21 observed that the Andhra Pradesh High Court doesn’t have jurisdiction to hear the case and asked the lower court to decide on it in two days.

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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. Ranbaxy is a unit of Japan’s Daiichi Sankyo Co., which owns 63.5 percent of the Indian generics maker.

Dilip 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.

The deal will be completed by around the end of December, after regulatory approvals and shareholder meetings, according to an April 11 statement from Daiichi.

--With assistance from Ketaki Gokhale in Mumbai.