HC blocks Ranbaxy-Sun Pharma merger over insider trading allegations

The Andhra Pradesh High Court on Tuesday put a stay on the proposed merger of Ranbaxy Laboratories with Sun Pharma, acting on a petition by a few individual investors alleging possible insider trading.

The high court ruling sent the shares of both Ranbaxy and Sun Pharma plummeting in morning trade today.

The petitioners had argued that there was heavy trading in Ranbaxy stocks before the merger with Sun Pharma was announced on 6 April, and requested the court to direct the Securities & Exchange Board of India to investigate possible insider trading in Ranbaxy shares and take appropriate action against Sun Pharma and Silverstreet Developers LLP, the wholly owned arm of Sun Pharma.

As per the statement submitted to the court, more than seven million Ranbaxy shares were traded before the merger announcement was made, pushing the share price over 25 per cent.

Earlier, Sun Pharma had said that the matter related to purchase of shares of Ranbaxy Laboratories Ltd by Silverstreet Developers LLP "does not violate insider trading rules".

Sun Pharma on 6 April agreed to buy Ranbaxy Laboratories for $3.2 billion, as well as Ranbaxy debt of $800 million, in an all-share transaction, taking the total deal value to $4 billion. Touted as the biggest pharmaceutical sector deal in the Asia-Pacific region this year, it will create the world's fifth-largest maker of generic drugs.

The court ordered the status quo and also served notices on Sebi, the Bombay Stock Exchange, the National Stock Exchange, Sun Pharma, Ranbaxysnd its new owner Daichii Sankyo and Silver Street Developers. ''There shall be an interim status quo, as prayed for,'' Justice P Naveen Rao said in the order.

The petitioners also requested the court to 'restrain' BSE and NSE from giving any clearance to the scheme of amalgamation or merger between the two drug makers.

''The extensive and sudden rise in the share price of Respondent 5 (Ranbaxy) prior to announcement of merger shows that certain persons had prior information about the said merger. Consequently, the trading amounts to violation of SEBI's Insider Trading Regulations,'' the petitioner alleged.

''We have not received any such communication. The matter related to the purchase of the Ranbaxy Laboratories' stocks does not violate insider-trading rules. With regards to the petition filed, the matter is subjudice and, hence, we cannot make specific comments, but we would take appropriate action as advised by our legal counsel," a Sun Pharma spokesperson said.

Sun Pharma had earlier denied insider-trading charges against Silverstreet Developers LLP, its wholly owned arm, in the acquisition deal.