The fair trade regulator, Competition Commission of India (CCI) today approved the merger of Sun Pharma and Ranbaxy merger with some conditions and till these conditions are met, the merger cannot go through said Ashok Chawla, Chairperson, CCI in an interview to CNBC-TV18.
The approval comes after the first ever public scrutiny carried out by CCI for a merger, which was announced in April and would create India's largest and world's fifth biggest drug-maker.
CCI has asked the two companies to divest some key products along with other changes to the deal to address the anti-competitive issues. "It has looked at specific molecule brands for potential conflict," said Chawla
Chawla said, the commision will be appointing an external monitoring agency to ensure that the process of divestment goes through in letter and spirit. There are 7 molecules that have been identified that cannot go through and the assets relating to those have to be divested before the two companies can effect the merger, he added.
Below is the transcript of Ashok Chawla's interview with CNBC-TV18's Archana Shukla and Kritika Saxena.
Archana: The clearance has come as we read on the website of CCI. Let me just quickly ask you what was your first thing that you were looking at when you were assessing the market shares and you were assessing the merged entities portfolio?
A: We look at the combined market power of these two companies which are getting together. Overall it was not a concern but then we looked at specific molecules and brands - in fact 49 of them is where we saw the potential of adverse effects on competition and of those in the order that we have given out today, we have identified 7 brands molecules which we said cannot be allowed to go through even though the merger can be approved. However the assets relating to those have to be divested before the two companies can effect the merger.
Archana: Essentially this is not a conditional approval in that sense. So, what is the timeline that CCI has given them to divest these products?
A: This is in that sense a conditional approval that until these are sold the merger cannot be effected.
Archana: What is the timeframe that has been given to the two companies to divest this portfolio?
A: In the first tranche - six months and we have also said in our order that CCI will indentify and appoint a monitoring agency to ensure that the process of divestment goes through in letter and spirit and then they will come back for the approval of the commission on the party that they are selling these assets to and the terms and conditions of the sale with the objective being that we want to ensure that not just the sale takes place but it goes to somebody who can provide effective competition in the market.
Archana: Who would be that entity, would it be from someone within CCI and have you already identified the team who would be overseeing this process of divestment from the portfolio of the two companies?
A: It will be an external expert. We have shortlisted some major firms but the choice is not yet made. It will be done by a committee of our officers, they will get our approval. So, the agency will be in position in the next 2-3 weeks. However which agency it is I cannot say today.
Archana: When you say six months have been given to them to close, sell and divest these brands which means in these six months they will not be able to finally seal the deal. Sun pharma and Ranbaxy will not be able to seal the deal and call it a done one?
A: Whether it takes six months or they take less till they do it they can not seal the deal.
Archana: That is the rider, so conditional approval in that sense but then six months another waiting period for Sun and Ranbaxy to actually go ahead as a merged entity?
A: Yes, they have to wait till this sale takes place.
Archana: Were there any sort of back and forth with the company? Did they quickly accept what CCI had sent out in terms of the list of drugs or was there a lot of back and forth from the companies in terms of which drugs and which products would be part of the divestment list?
A: That is a part of a normal cycle in terms of mergers and where structural remedies are proposed and the legal architecture also provides for the commission to suggest modifications or propose modifications and the parties to either accept them fully or in part. There is always some process of back and forth till the commission finally decides on what it wants done and that is the order which has been issued today.
Archana: What has come today is like the final list and there is no back and forth happening beyond this. These are the seven products that the two companies will have to divest?
A: That is the final order and there can be no change.
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