In what could play a crucial role in the Ranbaxy-Daiichi deal, ET has learnt that there is a clause in the agreement which says that the 34.8% holding of promoters will be sold through a stock exchange transaction. But this can only happen if the Ranbaxy share price touches a minimum of Rs 729 (Rs 566 on Friday) to sell the promoters' stake at Rs 737 per share to Daiichi Sankyo. This is because Indian laws allow bulk deal transactions only at a price which is 1% more or below the market price or previous day's closing price.
A stock exchange transaction will result in the promoters saving more than Rs 1,000 crore which they would have to pay if this was an off-market transaction. Unlike an off-market transaction which attracts a 10% long term capital gains tax, stock exchange transactions do not attract capital gains tax. The promoters will therefore hope that the Ranbaxy stock price reaches the magical Rs 729 figure before the transaction is executed. But that depends upon the movement of the Ranbaxy stock. It will decide whether the Singh family will transfer its 34.8% stake in Ranbaxy to Daiichi through direct off-market sale or through negotiated deals on stock exchanges.
Considering that the stock market has been going through a bear phase and the Ranbaxy stock on Friday reached its 3-year high level, legal circle sources are uncertain whether the Singh family will be able to conclude the proposed transaction through negotiated deals and thereby will be eligible for securities transaction tax. If not, the Singh family will have to sell its shares to Daiichi through a off-market deal, attracting huge tax liability.
"As it appears now the possibility of the Singh family ends up with paying huge capital gains tax is very high. Only advantage the family enjoys is that it has another nine months to consummate the deal," said a legal source. When contacted, a company spokesperson said: "We cannot comment further on the deal." It is however learnt that the company will opt for an onscreen transaction and wait for its share price to touch Rs 729 and execute the sale to adhere to the domestic market regulator Securities and Exchange Board of India's (SEBI) rules.
"The moment the share price touches the minimum level of Rs 729 per share, they will do the transaction on screen," said a source.
An off-market transaction would invite a 10% basic capital gain tax, 1% surcharge and an additional 3% tax on the surcharge, a source said. But block deals done through stock market transactions will mean that Ranbaxy promoters will have to pay a nominal securities transactions tax (STT) of 0.125%. In addition, it will have bear some small costs such as broker's fee and 12.5% service tax (on the broker's fee), which could run into few crore, says a source.