Ranbaxy Acquisition by Daiichi Sankyo
(6 pages of text)
This case presents a trading situation arising out of the acquisition of Ranbaxy Laboratories Limited, an Indian pharmaceutical firm, by Daiichi Sankyo, Inc., a Japanese pharmaceutical firm, in 2008. After buying out the Ranbaxy’s founding family’s stake in the company, Daiichi Sankyo made a partial tender offer bid for the remaining shares of Ranbaxy. The uncertainty as to whether or not the deal would go through and what the eventual acceptance rate would be resulted in a special situation investment opportunity. In the case, a risk arbitrageur needs to evaluate this potential opportunity and determine an appropriate trading strategy. Key decisions include whether to buy or sell the target stock and when to implement this purchase or sale. In this way, the case presents an unfolding situation augmented with a rich set of relevant secondary data such as news and stock prices, so that students are exposed to a real trading situation. The case requires students to understand market mechanisms and perform detailed analyses to justify their decisions.
- How tender offers work.
- How short selling and arbitrage work.
- The decisions made by long and short holders of the stock in case of a tender offer.
- How traders make decisions under uncertainty by estimating deal completion probability, participation ratios and post-offer prices.
- How futures contribute to price discovery and information revelation.
Finance and Insurance
India, Large, 2008
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