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THE sharp depreciation of the Indian rupee against the Japanese yen and the dollar helped Japanese drug company Daiichi Sankyo save around $880 million in its over $4-billion acquisition of India’s largest drugmaker, Ranbaxy Laboratories.

On June 11, Daiichi Sankyo and Ranbaxy announced a share purchase and share subscription agreement, allowing the Japanese company to pick up 63.9% stake in the Indian company for Rs 19,803 crore. The Japanese firm also agreed to pay about Rs 175 crore as exercise fee for the 2.3-crore warrants issued by Ranbaxy. These warrants can be converted into equity next year. The total deal size stood at Rs 19,978 crore, translating into 49.78 billion yen, as per exchange rates on June 11.

But due to regulatory hurdles, the deal payment happened much later in two phases on October 20 and November 7. On October 20, Daiichi Sankyo acquired a 52.5% stake from the owners, open offer and subscription of shares. On November 7, it bought another 11.4% stake to take its stake to 63.9% in Ranbaxy. Over the four-month period—between the announcement of the deal and the actual payment—global currency rates swung sharply and the Japanese yen strengthened by about 17% against the Indian rupee.

Officials involved in the transaction say Daiichi Sankyo got approval from the RBI to buy Indian rupees worth about Rs 20,000 crore around October 20. Using exchange rates as on the day the Japanese firm bought the Indian currency, the deal size of Rs 19,978 crore comes to 40.91 billion yen. This was 8.87 billion yen less than the original deal value in the Japanese currency. Using the yen-dollar exchange rate on October 20 (1$= 100.35), it translates into a benefit of $883 million for the Japanese company.

Daiichi Sankyo’s acquisition of Ranbaxy is the largest buyout of an Indian company in value terms. The saving could come as some consolation for Daiichi Sankyo, who most believe paid a hefty price for the Indian company. Ranbaxy shares have dropped to around one-third of the Rs 737 transaction price due to the stock market crash and the global economic meltdown.

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