Over six trading days, prior to the announcement of its acquisition by Sun Pharma on Monday, Ranbaxy shares rallied 34%. Could it be a case of insider trading?
On 7th April, Ranbaxy Laboratories Ltd (Ranbaxy) announced about its acquisition by Sun Pharmaceutical Industries Ltd (Sun Pharma) in $4 billion deal. Because of this announcement, Ranbaxy share price opened 10% up and made its 52-week high at Rs505 on BSE before it ended lower. But why was there a sudden rise in volumes and prices over six trading days, prior to this takeover?
The sudden unusual rise in Ranbaxy’s turnover and prices during last six trading days seems fishy. The stock rose by as much as Rs116 (34%) in days before its made public announcement, a huge rise of 8.18% happening on Friday, the trading day before the actual announcement! This was extremely unusual and points to a clear case of insider trading. Take a look at the following data:
Date | Open | High | Low | Close | No of Shares |
27 Mar | 356.3 | 359.15 | 344 | 346.75 | 2,40,842 |
28 Mar | 348 | 369.15 | 348 | 364.05 | 8,19,101 |
31 Mar | 364.05 | 373.75 | 359.2 | 365.05 | 4,87,117 |
01 Apr | 369 | 373.2 | 364.8 | 370.7 | 3,37,894 |
02 Apr | 371 | 414.4 | 371 | 404.1 | 23,13,647 |
03 Apr | 407 | 429.45 | 403.1 | 424.8 | 15,84,663 |
04 Apr | 428 | 462.7 | 427 | 459.55 | 22,80,999 |
On 28th March, Ranbaxy opened at Rs348 and closed 4.61% up at Rs364.05 with turnover of as high as 8.19 lakh shares. On 2nd April, Monday, it opened at Rs371 and closed 8.92% up at Rs400.39 with turnover of 23.13 lakh shares. On 3rd April it opened at Rs407 and closed 4.37% up to Rs424.8 and generated turnover of 15.84 lakh shares.
On 4th April, Ranbaxy opened at Rs428, made a day high at Rs462 and closed 7.37% up at Rs459.55 with as high as turnover of 22.80 lakh shares.
On 7th April, Ranbaxy opened 10% up and made 52-week high at Rs505 on announcement of its acquisition by Sun Pharma for $4 billion, after making its high it fell down to day low of Rs434.05 and closed 3.12% down at Rs445.20.
If someone knew about its acquisition plans and bought shares on 27th March at an average price of Rs350.8, he could have made 26.15% profit (Rs91.75 per share) on 7th April while selling at the average price of Rs442.55 today.
The dramatic nature of the rise and suspicions of insider trading comes through if you look at the following chart that plots Sensex and four other pharmaceutical stocks, Sun Pharma, Dr Reddy’s Laboratories, Ranbaxy and Cipla. It is not that the overall market was rallying. It was not that pharma companies were rallying. It was only Ranbaxy that was shooting up – based on no news that could be related to the company.
In fact, Ranbaxy has been struggling to find its feet ever since the Japan’s fourth largest pharma company, Daiichi Sankyo Co Ltd, took it over from streetsmart brothers Malvinder Singh and Shivinder Singh. It has lost billions trying to fix various problems that the earlier management seem to have left behind. During the December 2013 quarter itself, Ranbaxy lost Rs396 crore. The company is also facing legal issues from US FDA, which has banned its Toansa plant in Punjab. At one stage, the Daiichi management even thought of suing the Singh brothers for dumping a lemon on them.
In its regulatory filing Ranbaxy said, “Sun Pharma and Ranbaxy entered into definitive agreements pursuant to which Sun Pharma will acquire 100% of Ranbaxy in an all-stock transaction. Under these agreements, Ranbaxy shareholders will receive 0.8 share of Sun Pharma for each share of Ranbaxy. This exchange ratio represents an implied value of Rs457 for each Ranbaxy share, a premium of 18% to Ranbaxy’s 30-day volume-weighted average share price, as of the close of business on 4 April 2014.”
The suspicious spurt in volumes and price in Ranbaxy calls for an investigation by the market regulator. But then while insider trading is rife in India and SEBI rarely acts, despite having spent Rs40 odd crore in sophisticated inter-market surveillance system. Moneylife had written about suspicious trading activities in the AstraZeneca Pharma, LIC Housing Finance and Bajaj Corporation to name a few. There have been no action by SEBI.
You may like to read more about Ranbaxy…
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