Ranbaxy stake sale – Let’s call a spade a spade

The Singh family, promoters of Ranbaxy Laboratories, in a surprise move sold their controlling stake to Daiichi. Now this act of the Singh family is just what it is – a stake sale. However, Malvinder Singh, CEO of Ranbaxy has explained this move as a pioneering move and as such I am forced to comment.

First, Malvinder Singh does not have to justify his actions. He and his family are owners of a particular asset and have the right to sell it at any time. The sale itself signifies Singh family’s thinking that at the price that they sold the stake was better than running the company. This also suggests that they do not have enough confidence in Ranbaxy otherwise they would have at least kept some stake in it. Still we cannot question their right to sell what they own at any time.

However, when Malvinder Singh tries to justify his actions as an heroic act, I am forced to respond. Malvinder Singh has said that companies all over the world will follow this model. Now I don’t know what model he is referring to. Mergers and acquisitions have been going on since a long time. This is not the first time that promoters have sold their stake. This is also not the first time that promoter / entreprenuer has sold his stake and has remained the CEO of the company. So what’s new about this so called model, if one can call this transaction that.

Malvinder has also said that the stake was sold as it was in the best interest of the company and to grow the company. Now Malvinder wants to grow the company with no stake. He is not putting his money where his mouth is. If he intends to grow the company and its value, then he should have kept some stake and benefitted from it in the future. A complete exit suggests that he does not see the future of Ranbaxy very bright.

Malvinder is having the best of both the worlds. He has completely exited and will invest in his other companies which they are more interested in growing. His actions suggest that the future of his healthcare and financial companies is brighter than that of Ranxay. He will control Ranbaxy has CEO for another 5 years by which time both the brothers will be able to build their healthcare and financial businesses.

Some have even suggested that the Singh family has bailed out. People are saying that pharma research is an expensive proposition and requires lots of funds. Singhs were not confident enough that they can either raise the money or whether they would be able to get adequate returns on investment. I feel that this is true. But I do not see any obligation on the part of the Singh family to remain invested in Ranbaxy in perpetuity.

Lastly, one reason stated was that scale / size of ranbaxy was an issue. That is, Ranbaxy was not big enough and that it needed to be merged with another company to build up size. As we are all aware, this argument is always given at the time of any merger and acquisition. However, in every industry you will find small players surviving. Large is not always successful or more profitable.

So lets call a spade a spade. Singh family found it lucrative to exit and they did it. It was nothing less, nothing more. So, Malvinder, please respect our intelligence.

Avinash Narula

Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.

Comments

Great Blog post. I am going to bookmark and read more often. I love the Blog template if you need any assistance customizing it let me know!

Reply

I was talking about this Ranbaxy deal two days back with a friend of mine. I was telling him that Malvinder Singh would have worked out a good compensation package for himself which would also include a lucrative severance package. I also told him 2 days back that Malvinder Singh would not last as the CEO of Ranbaxy for more than 2 years. He would quit and take a huge severance package with him. Can you picture Malvinder Singh, a very weathy man who was used to giving orders to take orders from anybody especially a Japanese executive? I can’t.

I am a small entrepreneur and I don’t want to work for anybody. Then why would Malvinder Singh want to work for somebody especially when you are wealthy (Rs. 10,000 crores received on sale of Ranbaxy shares)as well as when you have couple of successful ventures already established like Fortis, Religare and SRL.

Guess what? It seems I was right. Today I read in the papers that Malvinder Singh has negotiated a Rs. 25 crore annual compensation package for himself. Now lets wait and see when he quits Ranbaxy and the amount of his severance package.

By the way, Malvinder has claimed that he did the deal because it was in the best interest of shareholders. Her’s how he calculates shareholders interest. He sells his shares at Rs. 740 a share while the shareholders will get on an average around Rs. 540/share.

I repeat that I do not question malvinder’s right to sell his shares at the best price but he should not go about town claiming that he did everything for the interest of the company and the shareholders. At least, I would not hold it against him if he was honest enough to say that he went through the deal because it was in his family’s best interest.

If any of you think different, do let me know.

Avinash Narula

Reply

Dan hi!

thanks for the encouraging words. I do hope you will keep visiting us. By the way, I think we may have some common interest as I visited your blog also. Kindly visit my website customermath.com and you may find some interesting material to read and even for your blog.

You will shortly start seeing some posts on customer satisfaction and retention space.

thanks

avinash

Reply

Leave a comment

(required)

(required)