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India's Sebi may probe possible insider trading in Ranbaxy

Publication Date : 10-04-2014


The Securities and Exchange Board of India (Sebi), the country's capital market regulator, is likely to probe possible insider trading in Ranbaxy Laboratories shares ahead of its acquisition by Sun Pharma for $4 billion.

Equity market sources point out that three days before the deal was announced on Monday, Dalal Street witnessed nearly 24-per cent spike in the price of Ranbaxy shares during the previous week from Tuesday to Friday.

On the Bombay Stock Exchange and the National Stock Exchanges, Ranbaxy stocks shot up from 370 rupees(US $6.16) to 459 rupees ($7.64).

The deal between Sun Pharma and Ranbaxy was formally announced on Monday.

Moreover, as per the acquisition deal, the implied value of Ranbaxy shares comes to 457 rupees (US$7.6), which was just a couple of rupees below Friday's closing price. Experts say the market regulator can examine trade records of brokers involved in hectic buying and selling in Ranbaxy.

However, the Sebi, which has not officially reacted to market speculations, is yet to receive a formal complaint from either investors or brokerages. But the sharp rise in Ranbaxy Laboratories’ stocks gives enough room to suspect insider trading by some entities who had advance knowledge of the impending takeover by Sun Pharma, which is the world's fifth largest generics manufacturer.

Sun Pharma is spending $3.2 billion to acquire majority shares in Ranbaxy Laboratories. which has been debarred by the United States Food and Drug Administration from supplying its products, following an exhaustive inspection of its facilities in India.

Sun Pharma has also bought Ranbaxy's debt burden of $800 million.

Post deal, brokerages and investment bankers voluntarily improved ratings of both the pharmaceutical companies.

As markets resumed today, Sun Pharma stock jumped 8 per cent in morning deals. Ranbaxy shares also gained nearly 4 per cent.

Bank of America-Merrill Lynch was the first to upgrade Sun Pharma citing “higher price-to-earnings multiple post acquisition."
Global investment banker UBS upgraded Sun Pharma from “neutral” to “buy”, saying “we believe the deal makes sense given limited overlap for Sun Pharma and Ranbaxy in India and Sun's limited presence in the rest of the world."
Macquaire also upgraded both the stocks. In its assessment, Sun and Ranbaxy together are a bigger and better combination. Deal would not result in dilution of earnings for Sun Pharma.


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