The Mehtas, promoters of Ahmedabad-based Torrent group, are likely to raise funds from foreign banks to acquire their larger pharmaceutical rival, Cipla, by pledging part of their stake in their listed electricity generation unit, Torrent Power, according to bankers.
Torrent’s promoters own a 53.6 per cent stake in Torrent Power, valued at Rs 18,643 crore as of Friday, which remains a crucial avenue for raising funds for the Mehtas. Assuming the deal goes through at the current market price, bankers estimate Torrent would need approximately $7.3 billion to acquire Cipla promoters’ 33.5 per cent stake and the 26 per cent open offer, assuming 100 per cent subscription.
In addition, the Torrent promoters, who own a 71.25 per cent stake in their flagship company, Torrent Pharmaceuticals, also plan to divest part of their stake in the company to raise funds. As of Friday, the promoter’s stake in Torrent Pharmaceuticals was valued at Rs 45,162 crore. Analysts expect Torrent’s promoters to partner with private equity firms to inject $2.8 billion as equity and raise a debt of about $4.3 billion for the acquisition.
A Torrent group spokesperson declined to comment. A source said the group is also planning to raise funds by listing their gas distribution business by 2025, which is owned by the promoter family. The company has licences for 34 districts in India, and the potential listing could help reduce the level of debt the promoters would need to take on to fund the Cipla acquisition. The group has submitted its non-binding offer to the promoters of Cipla and is awaiting a response.
Data submitted to stock exchanges reveal that the promoters have not pledged their stake in either listed entity, providing them with the flexibility to finance the largest transaction in the pharmaceutical sector.
Aside from Torrent, American private equity major Blackstone has also made an offer for Cipla. Still, according to bankers, their offer is around 30 per cent less than that of Torrent’s, at about Rs 900 per share.
Assuming the deal goes through close to Cipla’s current valuations, the ability of private equity and other equity investors to secure a healthy return could be affected. Hence, at Cipla’s current share price, the likelihood of a strategic investor acquiring Cipla is higher than a private investor acquiring a majority stake, say bankers. Analysts noted that private equity investors will likely seek opportunities to unlock value in Cipla, including its potential consumer healthcare franchise listing.
Analysts pointed out that acquisitions have been a core part of Torrent’s domestic growth strategy over the past decade. In all its three major acquisitions to date—Elder, Unichem, and Curatio—the company has successfully scaled up brands, trimmed costs, and achieved synergies. “Nevertheless, Cipla’s scale is considerably larger than any of the assets Torrent has acquired so far. Unlike Torrent’s previous acquisitions, given Cipla is run efficiently, we believe there are limited opportunities for immediate synergy gains,” said an analyst with Kotak Institutional Securities in a note.
Torrent game plan
May offer up to $7.3 bn to buy Cipla
Raise $4.3 bn as debt from foreign banks to fund acquisition
Will raise rest as equity from PEs, own funds
Promoters to sell stake up to 25 pc in Torrent Pharma
Promoters to list gas distribution business by 2025 to reduce promoter-level debt