India's Biggest Pharma Acquisition: One Stock Rises While The Other Falls

Shares of Cipla edged higher on Friday while those of Torrent Pharma were sinking after it was reported that Torrent was looking to make a bid to acquire a stake in the country’s second-largest Pharma firm.

What Happened: Torrent Pharma is actively seeking financing options to acquire the promoter family’s stake in Cipla, emerging as a major contender for the largest pharmaceutical sector acquisition in India to date, sources told the Economic Times.

The financing plan includes a potential equity infusion of around ₹8,300 crore from one or more private equity players. The company has engaged with several PE funds, including Advent International, Bain Capital, Warburg Pincus, and CVC Capital, to explore the possibility of a minority stake in a consortium.

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Furthermore, Torrent Pharma is in discussions with domestic shadow banks and mutual funds to secure ₹9,000-₹10,000 crore in share-backed promoter financing, the sources added. This move aims to leverage the 71.25% promoter ownership held by Torrent’s founders, the Sudhir and Samir Mehta family.

Torrent Pharma is also reportedly negotiating separately with foreign banks, including Standard Chartered, JP Morgan, MUFG, Citi, and Barclays, to raise as much as ₹32,000-₹35,000 crore (up to $4.23 billion) for acquisition financing against the cashflows of the target.

While the financing terms are still under development and may evolve, Torrent Pharma is targeting the submission of a binding offer in early October, the sources told the business daily.

This move by Torrent Pharma comes as rival bidders Blackstone and Baring Private Equity Asia-EQT have temporarily paused their pursuit of Cipla. Both firms reportedly submitted non-binding bids in August but decided to pause due to a significant rise in Cipla shares since July 15. Cipla promoters, led by YK Hamied’s family, own 33.47% of the company, which is valued at ₹1.01 lakh crore in the current market. If fully subscribed, Torrent may end up paying a total of ₹60,000 crore for a 59.47% stake in Cipla.

However, a downward correction in Cipla’s stock could potentially reignite interest from rival PE funds.

Price Action: Cipla’s share price was up 0.2% to ₹1,260.15 while Torrent Pharma’s share price eased 0.18% to ₹1,839.20 at open.

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Posted In: EquitiesWIIMMarketsBaring Private Equity AsiablackstoneCiplaTorrent Pharmaceuticals