Top Indian drug giant Sun Pharmaceutical Industries has agreed to buy its troubled peer Ranbaxy for $4 billion in stock, ending its ill-fated six-year control by Japan's Daiichi Sankyo.
The deal will create India's biggest drugs manufacturer by far and leave Daiichi Sankyo with a significant stake in the combined entity.
Daiichi Sankyo bought Ranbaxy in 2008, believing its dominance in cheap generic medicines and developing markets would help the firm grow.
However the Indian company has been a weight on Daiichi's books ever since due to its regulatory problems.
The United States, one of Ranbaxy Laboratories' biggest markets, has slapped import bans on its manufacturing plants for failing to meet "good manufacturing practices".
Sun Pharmaceuticals said they intended to work hard to get the banned facilities re-certified.
"First focus will be on compliance," managing director Dilip Shanghvi said in a conference call, referring to demands from the US Food and Drug Administration.
"Because only when the facilities are okayed by the FDA can new product applications be thought about," he said.
Under the acquisition terms, Ranbaxy shareholders will receive 0.8 shares of Sun Pharma for each of their own shares, worth the equivalent of 457 rupees (€5.56).
"The deal will give Sun Pharmaceuticals access to Ranbaxy's distribution network and hence a better chance to penetrate India's huge rural markets," Shanghvi added.
Competition laws, both in the United States and India, are unlikely to pose serious challenges for the deal, management said in the conference call with analysts and media.
Ranbaxy shares gained 2.26% or 8.65 rupees to 451.50 rupees per share on the Bombay Stock Exchange.
Shares of Sun Pharmaceuticals gained 3% or 17.30 rupees to 589.00 per share.
Aditya Khemka, lead pharmaceutical analyst at Ambit Capital in Mumbai, said the value of the deal looked attractive despite the regulatory hurdles faced by Ranbaxy.
"We need to now see what savings and incremental revenues Sun Pharma can generate from Ranbaxy," he said.
US regulators also banned some products by Sun Pharmaceuticals last month as the FDA scales up scrutiny of India's $14-billion-a-year pharmaceutical sector amid worries about safety.
India, known as "pharmacy to the world" due to its vast generics market, supplies medicines to more than 200 countries - many in the emerging world - and is the second largest supplier of drugs to the United States after Canada.
Ranbaxy reported a consolidated net loss of 1.59 billion rupees for the quarter ended December 2013, compared with a 4.92 billion rupee loss a year earlier, thanks to rising sales in key markets and currency gains.
However the company faced an uphill battle to repeat the performance in the subsequent quarter after the bans from the United States, which traditionally made up some 40% of its sales.