November 12, 2013
NEW DELHI: Japanese pharmaceutical company Daiichi Sankyo has accused Malvinder Mohan Singh and Shivinder Mohan Singh of concealing and misrepresenting facts at the time of its $2.4-billion purchase of a controlling stake in Ranbaxy Laboratories in 2008 from the brothers.
November 12, 2013
NEW DELHI: Japanese pharmaceutical company Daiichi Sankyo has accused Malvinder Mohan Singh and Shivinder Mohan Singh of concealing and misrepresenting facts at the time of its $2.4-billion purchase of a controlling stake in Ranbaxy Laboratories in 2008 from the brothers.
The accusation was made in an arbitration case filed in Singapore, said three people familiar with the development. Daiichi has sought compensation for losses arising from the $500-million settlement that Ranbaxy was forced to reach with the US Department of Justice in May over accusations that the company faked test results to get approval from the Food and Drug Administration for its medicines.
The US subsidiary of Ranbaxy pleaded guilty to seven felonies relating to the manufacture and distribution of certain adulterated drugs made at units in India and agreed to pay the money to settle criminal and legal suits. The company had said on May 22 it may initiate legal steps against the Singhs, who have focused on finance, healthcare and other areas since exiting Ranbaxy.
Daiichi's case may be difficult
But a person aware of the purchase terms said Daiichi's case may face challenges because it doesn't necessarily indemnify the new owners.
"It would be interesting to see the outcome of the arbitration given that Singh brothers had not indemnified the Japanese buyers for such eventualities," he said. A review of the share purchase agreement (SPA) executed on June 11, 2008, appears to indicate that this may indeed be the case.
A Right to Information filing by Hemant Shripad Shetye had forced the Securities & Exchange Board of India to provide a copy of the SPA, otherwise a confidential document. Apart from this, the company's troubles were public knowledge at the time.
The FDA had begun inspections and searched various units of Ranbaxy in 2007. It had banned 30 generic drugs produced by Ranbaxy at its Dewas and Paonta Sahib units, citing gross violations of approved manufacturing norms.
The Singh brothers and Daiichi didn't respond to questions. In any case, buyer and seller are prohibited from disclosing anything in relation to arbitration proceedings under the SPA.
Under the agreement, all disputes are to be resolved by the International Chamber of Commerce in accordance with commercial arbitration rules.
"The arbitration proceedings and the award shall not be made public without the joint consent of the disputing sides and they shall maintain the confidentiality of such proceedings and the award," the SPA states. Other parts of the SPA seem to be worded in a way that would make it difficult to pin down responsibility.
According to a representation by Ranbaxy in the SPA, "To the knowledge of the company, there is no event or situation that has not been disclosed to the buyer (Daiichi) and its representative since the accounts date and which could have a material adverse effect.
For the purpose of this, the 'knowledge of the company' shall mean the knowledge of founder 1 (Malvinder Mohan Singh) without any obligation of founder 1 to make any due enquiry." This appeared to be an unusual practice for an M&A, said a senior investment banker with a foreign bank who's been involved in several large transactions.
"This is a strange qualification where buyers waive the need for the seller to make representation after due enquiry." The banker, who didn't want to be named as he is not authorized to speak to the media, wondered why Daiichi had signed such an agreement.
Despite various facts relating to the FDA investigation being public knowledge, the agreement not containing any specific representation or warranties or indemnification for these investigations has surprised industry experts.
Courtesy: ET
