Torrent leads race to acquire Cipla with 30% higher offer than Blackstone's

Torrent Pharmaceuticals has emerged as a frontrunner to acquire its rival Cipla with a non-binding offer that’s more than 30 per cent higher than American private equity giant Blackstone’s bid.
 

According to a source close to the negotiations, while Blackstone offered approximately Rs 900 a share, the Ahmedabad-based pharmaceutical firm has made an all-cash offer at around Rs 1,200 a share, which is close to the current market price of Cipla. Shares of Cipla closed at Rs 1,239 apiece on the BSE on Monday, with a market valuation of Rs 1 trillion.
 

The Hamied family, the promoter of Cipla, is expected to take a call on Torrent’s offer in two to three weeks, said the source. Spokespersons for Torrent Pharma and Blackstone declined to comment. The Hamied family did not respond to emails seeking comment.
 

Another source said Blackstone had not revised its offer so far and considered Cipla’s current market price on the higher side.  

“For private equity firms, any deal is to buy the company at the right value with the right exit strategy. Torrent, however, wants to build the business and have no plans to sell in the foreseeable future,” said the source. “Torrent is also looking at the opportunity cost if a similar (Cipla)-sized business is to be set up,” the source added.
 

The acquisition would trigger an open offer, which would imply a deal size of $6.7-7.0 billion -- potentially the largest pharma deal in the country so far, said the source.

A source close to Torrent said the group was in talks with several investors, including private equity firms, to join its bid to acquire Cipla – a company far bigger than Torrent in terms of revenues. “The promoters know each other well and Cipla is keen to see the company growing in future under able leadership,” said the source.

Torrent’s market capitalisation is around Rs 62,880 crore, and cash on its books was around Rs 827 crore as of March this year. “We imagine that this (deal) is possible through a 20-25 per cent promoter stake dilution in Torrent (promoters currently own 71 per cent) and a consortium of private equity participation and raising debt from foreign banks. Both Cipla and Torrent are cash-generating businesses, and large debt should not raise many eyebrows,” Bernstein analysts had said in a note to its clients on August 30.

The report said Torrent had a fairly complementary portfolio with leadership in a few portfolios like gastrointestinal, where Cipla’s presence is relatively weaker. “We believe the portfolio overlap is manageable. The combined entity will catapult it to the top of the leaderboard in India,” it said.

Analysts said it makes strategic sense for Torrent to buy Cipla, and it would be a rather straightforward deal to unlock value, though funding the transaction would require some heavy lifting. On the other hand, for Blackstone, funding would be the easier part. “Unlocking value would potentially involve spinning off businesses and listing them separately, where managing overlaps in the backend like research and development, manufacturing, supply chain would be complex,” the report said.