Sun Pharmaceutical said Ranbaxy shareholders will get 0.8 Sun Pharma shares for each Ranbaxy share.
The move follows an FDA inspection of a Ranbaxy facility which identified significant violations of sound manufacturing practices.
Under terms of the agreed deal, Ranbaxy shareholders will get 0.8 of a Sun Pharmaceutical share for each Ranbaxy share they own.
All of Ranbaxy's India-based factories are currently banned by the FDA from exporting medicines to the United States, the company's largest market, after the regulator's inspection found violation of its so-called good manufacturing practices.
In 2014, Sun Pharma agreed to buy Ranbaxy -- which was then controlled by Daiichi.
The recall is the latest in a series of problems to hit Ranbaxy, which has had all its India factories stopped from sending drugs and ingredients to the United States.
Ranbaxy, which is 63.5 per cent-owned by Japan's Daiichi Sankyo Co and gets more than 40 per cent of its sales from the United States, did not immediately respond to a request on Wednesday for comment on the FDA observations.
And when an inspector asked about the contents of unlabelled vials in the laboratory glassware washing area, a plant worker dumped them down a sink and said the contents could not be determined, according to a July 18 letter from the US Food and Drug Administration to Wockhardt, which makes sterile injectable drugs and various forms of insulin.
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