Sun-ranbaxy merger: the impact on the indian pharma sector

Abstract

A merger of two major players in an industry has a significant impact on the other players. This follows from basic market dynamics or forces. However, the key to understanding this phenomenon is to see which the companies that are actually affected are and which are shielded from this. The merger of two pharmaceutical giants Sun Pharmaceuticals and Ranbaxy in 2014 is the basis of this study and the mechanism of event study has been employed to help quantify the impact it had on the other players in the pharmaceutical segment. Out of the 26 companies analysed, 21 show a negative deviation from the expected stock prices, while 4 of them show a significant drop in the prices. Further analysis of these companies threw some interesting inferences. Since the pharmaceutical sector is significantly fragmented and compartmentalized, there are numerous players competing in each segment. Also, as the merger was expected to help both the merging parties, the companies that were present in the segments in which the merged entity was expected to pull ahead, were affected. Moreover, the impact was significant when the number of similar players in that segment were less. However, the most interesting observation was that the companies that showed significant hit were the ones that competed on a significant number of segments with the merging companies. There was no diversity in their competition. Hence, a merger with potential synergies has seen them get affected a lot more than other companies that had a spread in their competitors. Diversifying competition is one of the ways to mitigate such risks in industries such as this where there are multiple segments based on geographies and therapeutic areas.