Cipla, Torrent may need to divest 15 brands in buyout deal: Bernstein

Torrent has a strong presence in gastrointestinal, neurology, and cardiac segments

As the market buzzes with news of Cipla promoters exiting the business through a stake sale and Ahmedabad-based Mehta family-led Torrent Pharmaceuticals racing to acquire its rival, Cipla, an analysis reveals that if the deal were to go through, both companies might need to divest as many as 15 brands to comply with Competition Commission of India (CCI) norms.

A recent analysis by Bernstein shows that Cipla and Torrent share a presence in 332 products (based on product and molecule data from market research firm IQVIA).

Bernstein analysts Nithya Balasubramanian and Parth Shah noted that, while this may appear as a high number, a significant portion of these products lack significance.

“For 109, or about a third of these, both companies hold less than a 2 per cent market share. In fact, for only 49 of these products, do both companies have a share higher than 2 per cent,” Bernstein said.

“CCI has, in the past, requested acquirers to divest brands where the combined market shares might be very high in a particular market. However, these decisions take into account various factors, and there is no hard and fast rule to determine which brands may need to be divested,” Bernstein cautioned.

The private wealth management firm pointed out that there are only four overlaps where the combined sales share would exceed the 90 per cent mark and 29 where it would exceed the 50 per cent threshold.

Furthermore, if one were to exclude products where one of them has less than a 2 per cent share, the list becomes shorter and more manageable, with only two products having a combined market share of more than 90 per cent, according to Bernstein Research.

Additionally, the revenues from these products won’t significantly impact the combined entity, given that it will be the largest player in the domestic market.

Cipla and Torrent have fairly complementary presences across various therapy areas in the domestic market. While Cipla boasts a strong presence in respiratory and anti-infective therapies, Torrent does not have much presence in these areas.

Cipla also has a significant presence in urology, ophthalmic, and otological portfolios, whereas Torrent either has no presence or negligible presence in these therapy areas. Torrent, on the other hand, holds a strong presence in the gastrointestinal, neurologic, and cardiac segments.

According to sources, Torrent has emerged as the front runner to acquire its rival, Cipla, with a non-binding offer that exceeds American private equity giant Blackstone’s bid by more than 30 per cent.