The $4 billion Sun-Ranbaxy deal has hit its first major legal block with the Andhra Pradesh High Court (HC) issuing orders to stock exchanges to restrain from giving clearance to the deal until insider trading allegations are examined.
The HC also issued notices to both Sun Pharma and Ranbaxy, capital markets regulator Sebi and Silverstreet Developers LLP, a wholly-owned subsidiary of Sun Pharma.
“There shall be interim status quo, as prayed for,” said Justice P Naveen Rao in his order on a writ petition filed by a group of investors.
The petitioners alleged that entities with prior knowledge of the deal illegally profited as more than 7 million Ranbaxy shares were traded before the merger announcement was made, pushing the share price by over 25 per cent.
According to the petitioners, there was an unusual increase in share price between March 28 and April 4 before the deal was announced on April 6. During these six trading days, Ranbaxy shares rose from `348 to `459.55. And just few days before the merger announcement, i.e., between April 2 and 4, over 3.74 crore shares were transacted. This, the petitioners allege, was over five times the daily trading volume of 23.15 lakh shares per day.
The extensive and sudden rise in the share price of Ranbaxy prior to the merger announcement clearly demonstrates that certain persons had prior information about the said merger, the petitioners said. “Consequently, the trading on the said shares amounts to violation of the Sebi Insider Trading Regulations,” they added.
However, Sun Pharma denied allegations of insider trading. “The matter related to purchase of shares of Ranbaxy Laboratories Ltd does not violate Insider Trading Rules. With regards to the petition filed, the matter is sub judice and hence we cannot make specific comments but we would be taking appropriate action as advised by our legal counsel,” Sun said in a statement.
Earlier too, the company denied allegations of insider trading charges against Silverstreet Developers. “Silverstreet Developers LLP has two partners. Both are 100 per cent subsidiaries of Sun Pharma. Hence, all the benefits flowing from the investment in Ranbaxy shall accrue to Sun Pharma,” Sun had said in a disclosure with the bourses.