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For some years now I have been privileged to be on the board of Ranbaxy and have watched with awe as the company transformed itself into India's first real multinational. I have seen it inspire a dozen other companies. As a result there is now a world class generic drugs industry in India that is feared by the giants of the West for the aggressive challenge to their patents and admired around the world for helping lower the cost of medicines.
So, how was I supposed to react to the announcement by Ranbaxy's CEO, Malvinder Singh that he wanted to sell his family's stake for Rs 10,000 crores to a Japanese company, Daiichi Sankyo? Malvinder's family were just as shocked. The CEO's ability to keep months of negotiations secret in a country addicted to verbal diarrhoea says something about the character of the company
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IMy initial reaction was one of regret-how could one of India's finest companies become a mere subsidiary of a Japanese company? A company that had acquired 14 companies in 30 months was now about to be acquired. But as I thought some more, I realised I was wrong. I slowly grasped how this momentous deal would make the merged company much stronger to compete globally. I also realised how this sale could potentially create much greater value for the Indian nation.
In a world where the largest drug companies are struggling as their old patents expire and new discoveries become rare; where rising health care costs have pushed countries to favour cheaper generic drugs; where intense competition between generic drug makers has dramatically lowered profit margins; the logical solution is for discovery and generic companies to merge. Those who collaborate will do better than those who fight alone. This is why a drug discoverer, Daiichi Sankyo has valued a generics company, Ranbaxy at $8.5 billion when its stock market value is only $5 billion and is paying 35 times its future earnings. However, it will only unlock Ranbaxy's value if it does not gobble but leaves Ranbaxy alone, as Roche, the Swiss company, did with Genentech.
But how could selling an Indian company create wealth for India? Companies create wealth for nations when they create jobs, dividends for shareholders, and taxes for governments. If Ranbaxy had not been sold, it would have continued to generate steady returns. By joining hands with a stronger, larger, and more innovative Japanese company, it will now be able to produce more and better products, have greater ability to fight patents, its employees will learn Japanese skills in process, quality and teamwork. Thus, a stronger, Daiichi Ranbaxy will potentially create more jobs, lift more careers, give more returns to Indian shareholders and pay more taxes to the government. When the family invests its Rs 10,000 crores in its other businesses-- Fortis hospitals and Religare finance --and it could create more Ranbaxys and more wealth for India.
Compare Malvinder Singh's amazing action to sell at the right time to the sentimental, insecure reaction of the Escorts and DCM families in the 1980s. When Swaraj Paul bid for these companies, our pre-reform government stopped him dead. Most the companies of the two groups went downhill for the next generation was neither hungry nor capable. The families lost and so did the nation. In the case Ranbaxy case, the family put the business interest before the family's. Hence, Daiichi wants Malvinder Singh to stay on as CEO.
The most important lesson from the Ranbaxy affair is the mature way that the Indian public has reacted. Ten years ago our entire political class would have shed tears, waved the flag and tried to stop this deal. No wonder in the 2008 Pew Survey of 24,000 people across 24 major nations, Indians have come out amongst the most confident people. Nine out of ten Indians favour foreign trade and six out of ten welcom foreigners buying Indian companies. We have behaved far better than the French did over Laxmi Mittal's purchase of Arcelor. How quickly we have ripened as a nation! Now we need to apply this lesson and sell off our bleeding Navratnas.
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