Torrent Pharma gears up to buyout Cipla promoters, approach PE funding

Torrent Pharma is working to secure the necessary funds to buyout the promoter family of Cipla, according to a report by the Economic Times (ET). The report added that in order to do this, Torrent has reached out to several private equity (PE) funds, including Advent International, Bain Capital, Warburg Pincus and CVC Capital, for a minority stake in the company.

With around Rs 8,000 crore ($1 billion) equity infusion, this may become the largest acquisition in the pharma sector seen in the country to date.

Additionally, the Ahmedabad-based Torrent is in talks with domestic shadow banks as well as mutual funds for about Rs 9,000-10,000 crore ($1.1 billion) in share-backed promoter financing.

Moreover, Torrent is also in separate discussions with foreign banks, including Standard Chartered, JP Morgan, MUFG, Citi, and Barclays, among others. They are exploring the possibility of raising a substantial amount, up to Rs 32,000-35,000 crore (approximately $4.23 billion) as acquisition financing, the report added. The lenders are expected to provide funding commitment letters soon. Notably, JP Morgan is advising Torrent Pharma in this endeavour.

Torrent Pharma's founders, the Sudhir and Samir Mehta family, currently hold a substantial 71.25 per cent as promoters. This is one of the highest levels of promoter ownership in the Indian pharmaceutical industry. They intend to leverage this ownership to dilute equity and raise funds.

Torrent's goal is to submit a binding offer for the acquisition in early October. However, the financing terms are still under development and may change. The discussions with PEs are also in the early stages and could fluctuate depending on Cipla's valuation.

This move by Torrent comes at a time when two rival bidders, Blackstone and Baring Private Equity Asia-EQT (BPEA-EQT), previously considered frontrunners, have temporarily paused their pursuit of Cipla. This is in response to a 22 per cent increase in Cipla's shares since July 15.

Cipla's promoters, led by the Hamied family and YK Hamied, hold a 33.47 per cent stake in the company. As of now, Cipla's market value stands at Rs 1.01 trillion. At this valuation, the promoter's stake alone is worth Rs 33,700 crore (approximately $4.07 billion). If the open offer for an additional 26 per cent stake, as required under takeover rules, is fully subscribed, Torrent Pharma might pay a total of Rs 60,000 crore (around $7.2 billion) for a 59.47 per cent stake in the 88-year-old pharmaceutical company. This would surpass Sun Pharma's $4 billion acquisition of Ranbaxy from Daiichi Sankyo in 2014.

At the start of June, when talks began, Cipla's stock was valued at Rs 954. As of Thursday, it had closed at Rs 1,257.2. A downward correction is expected to reignite interest from potential investors.

On the operational front, both Torrent and Cipla derive approximately 70 per cent of their revenue from chronic and sub-chronic segments. While Cipla has traditionally focused on respiratory, anti-infectives, and urology segments, Torrent has strengths in cardiac, diabetes, neuro/CNS, and gastro therapeutic areas. Industry experts anticipate that their combined portfolio could include 33 mega brands, each with revenues exceeding Rs 100 crore, and leadership in 270 brands across respective therapeutic areas.