The government on Friday approved the acquisition of drug company Ranbaxy Laboratories [Get Quote] by Japanese pharma major Daiichi Sankyo envisaging foreign investment of around Rs 21,500 crore (Rs 215 billion).

"Daiichi Sankyo is now free to acquire Ranbaxy," Finance Minister P Chidambaram told newspersons after a meeting of Cabinet Committee on Economic Affairs, which cleared the acquisition.

Japanese firm earlier in June entered into a share purchase agreement with the promoters of the country's largest drug firm Ranbaxy to acquire controlling stake in the company.

As part of the acquisition, Daiichi agreed to buy the shares of another pharma company Zenotech Laboratories [Get Quote] which had a strategic alliance with Ranbaxy and pick up shares through open offer and direct purchase from the stock market.

Since the deal involved investments more than Rs 600 crore (Rs 6 billion) it needed the approval of the CCEA which was granted on Friday.

Briefing newspersons about the decision, Chidambaram said, "The flow of FDI as a result of acquisition of shares has been estimated at Rs 21,560 crore (Rs 215.6 billion)."

The total inflow would be more because Daiichi is also buying 6.89 million shares of Zenotech, he said.

The CCEA approval includes purchase of 9.25 million shares from the open offer and around 13 million shares from the promoters of Ranbaxy by Daiichi Sankyo.

The company has also been allowed to subscribe 4.6 million shares and 2.3 million warrants, in addition to picking up 6.8 million shares of Zenotech.

Following the sale of stake by promoters and open offer, Daiich will be able to acquire more than 50 per cent stake in Ranbaxy and become world's 15th largest drug company.