INDIAN billionaire and pharmaceutical tycoon Dilip Shanghvi’s $4bn acquisition last week of Ranbaxy Laboratories, the troubled drugs major, from Japan’s Daiichi Sankyo, will create the country’s largest pharmaceutical company and the world’s fifth-largest specialty generics maker.

Shanghvi, with assets of $13.6bn, is the fourth-richest Indian and ranks 77 in the World Billionaires list published by Forbes magazine. “This transaction helps us transition to our long-held ambition of becoming a successful Indian company in the global pharmaceutical space,” declared Shanghvi, the self-made billionaire and founder and managing director of Sun Pharmaceuticals, India's largest drugmaker in terms of market capitalisation, after announcing the takeover.

Sun will acquire 100pc of Ranbaxy Laboratories in an all-share transaction; it includes an equity value of $3.2bn and a net debt on Ranbaxy’s books of $800m, making it a $4bn deal. The new entity will have operations in 65 countries, including almost 50 manufacturing facilities across five continents. It will be the largest Indian drug player in the world’s largest market, the US, where combined sales is expected to top $2bn.

For the Japanese drug giant, which acquired a 63.9pc controlling stake in Ranbaxy in 2008 for $4.6bn, the sale will come as a huge relief. Daiichi Sankyo will end up with a 9pc stake in Sun Pharma by the time the deal is stitched towards the end of the year. The Japanese major acquired a controlling stake in Ranbaxy as it was keen to expand its presence in the generics business, especially in the US.

But the acquisition was jinxed, as Ranbaxy – which had a chequered past, including family disputes between the erstwhile owners – got into trouble in the US, its most lucrative market. The US Food and Drug Administration has in recent years imposed bans on four of Ranbaxy’s manufacturing facilities in India. The company also ended up paying a hefty fine of $500m to the FDA.

What was once one of the most profitable drug firms in India, Ranbaxy has reported huge losses in recent years. Daiichi was forced to sue the former promoters of Ranbaxy after the US FDA launched a probe after two former Indian employees blew the whistle on allegedly fraudulent drug tests at Ranbaxy’s plants in the country. Daiichi’s original investment in Ranbaxy has halved over the last six years.

Indian drug makers have a 40pc share in the US generic and over-the-counter (OTC) segment, and are next only to Canada as a drug exporter to America. But many Indian firms have been facing quality issues, with the FDA imposing bans on generic drugs made at facilities in India.

For Sun Pharma, which has also been facing some problems with the US FDA, the deal will result in a win-win situation. “It is a very synergistic transaction,” remarked Shanghvi. “It strengthens our presence in chronic therapy, acute care and OTC segment, all important segments going forward. The USA has been the largest market for Sun and this deal will further strengthen our presence there.”

SHANGHVI has made 13 acquisitions since the late 1990s, buying both American and Indian drug manufacturers. His first major acquisition was of Caraco Pharma Labs, Detroit. About four years ago, he acquired a majority stake in Taro Pharmaceutical Industries, Israel, which helped in Sun Pharma being catapulted into the $1bn-plus category.

Shanghvi believes that the Ranabxy acquisition will help Sun to expand its presence in the US and also in other markets such as South Africa, Ukraine, Romania and Malaysia. Sun already has eight manufacturing facilities in the US, besides plants in Bangladesh, Israel, Hungary, Canada, Mexico and Brazil. It also operates 10 plants in India.

Sun has also been able to work on quality concerns of the US FDA; about two years ago, it managed to resolve quality issues at Caraco’s plant in America and resumed production. The FDA had imposed a ban on manufacturing at the Detroit plant earlier.

Israel Makov, an Israeli expatriate who is the chairman of Sun Pharma, is confident that the company would be able to fix the quality issues at Ranbaxy’s plants in India and convince the FDA to allow it to resume supplies.

The frequent bans imposed by the US FDA on Indian pharmaceutical manufacturing facilities in the country have raised hackles here. In February, senior Indian ministers and officials raised concerns about the disproportionate penalties and other harsh actions imposed on Indian companies by the FDA, when Margaret Hamburg, the FDA commissioner, came to India on a maiden visit.

But American officials deny that the US has been targeting Indian drug makers. They have argued that the FDA has been taking action against US pharmaceutical firms, and exporters from the UK, Germany and other European countries, Australia, China, Brazil and many other nations.

India and the US have also signed an agreement on FDA inspections in the country, bringing about a degree of transparency in the process. The FDA will have to inform its Indian counterpart while inspecting facilities in the country; both regulators will also share information on a regular basis. The American regulator, which also has an office in India, inspected nearly 200 drug plants in India in 2012, up from less than a dozen a decade earlier.

Sun Pharma’s deal with Ranbaxy has, however, raised concerns among regulators in India. The Securities and Exchange Board of India (SEBI) will be scrutinising whether there was insider trading in Ranbaxy scrips in the run-up to the announcement of the deal. The Competition Commission of India will also be examining the deal.Some brokers have complained to the capital market regulator about the 30pc rise in the price of the Ranbaxy scrip before the deal was announced last week.

Makov, the Sun Pharma chairman, denied there was any insider trading. “We hold ourselves to the highest standards of corporate governance and business ethics,” he claims. According to him, one of the company’s subsidiaries, Silverstreet Developers, frequently invests in shares of stressed companies. It had invested in Ranbaxy even before the negotiations had begun with Daiichi.