The third generation of the Hamied family had been in discussions with their counterparts, the Sudhir and Samir Mehta family of Torrent Pharma. Negotiations have been suspended by mutual agreement and may be revived later, said the people cited.
The bid-ask gap is 15-20%, which appears to stem from the surge in Cipla shares since news of a potential stake sale by the Hamieds became public. Talks may resume if both sides find a meeting ground on the valuation, especially if the stock returns to Rs 900-1,000 levels, said the people cited above.
“It’s pens down at Torrent’s side,” said one of them. “The control premium asked will be difficult to bridge and then get an equity upside. Once things cool off, I do believe re-engagement is possible.”
Technically, Cipla is free to negotiate with others, but Torrent is said to be the sole player left. The Cipla stock surge had seen rival contenders Baring PE Asia-EQT, the Abu Dhabi Investment Authority and Blackstone baulk at rising valuations. They too might jump back into the fray if the stock price drops, said investment banking sources.
In April-July, the Cipla stock rose 41%. It hit a peak of Rs 1,266.45 on August 8 for a market capitalisation of Rs 1.02 lakh crore, a week after the news first became public following a CNBC TV18 report. Since then, the stock has declined 7%. It closed Monday at Rs 1,183.30/a piece , with a market value of Rs 95,571 crore.
Some executives said the Hamied family’s ask was a minimum Rs 1,300 per share. This could not be independently verified. People aware of the matter said Torrent was keen to stretch its bid to a Rs 1-lakh crore valuation, but that didn’t meet the expectation of Rs 1.10-1.12 lakh crore.A Torrent spokesperson declined to comment. Cipla didn’t respond to queries.
During Torrent Pharma’s earnings call on Monday, its chairman emeritus Sudhir Mehta referred to reports on the Cipla negotiations as “speculative.”
Torrent of Effort
Ahmedabad-based Torrent had been engaged in intense negotiations over the past month to tie up a Rs 60,000-crore ($7 billion) acquisition financing package, one of the largest in recent times, ET reported on September 1 and 18.
For the company founded in 1959 that has expanded through acquisitions in the past two decades, the bid for Cipla was its boldest bet yet.
It had cast its net wide to organise funds, with a plan to close the process by the end of September. Torrent was engaged with Brookfield to raise $1-1.2 billion (Rs 8,300-9,000 crore) mezzanine debt as share-backed promoter financing.
Torrent’s founders, the Sudhir and Samir Mehta family, own 71.25% as promoters. That’s among the highest promoter ownerships in Indian pharma, and they were seeking to use that headroom to dilute equity to raise leverage. Their plan was to create a non-disposable undertaking (NDU) using the shares as collateral for loans.
It was also in dialogue with CVC Capital Partners and Bain Capital for another $1 billion equity funding. Simultaneously, it was in talks with at least four to five foreign institutional investors to raise $200-250 million each.
ET earlier reported that both Brookfield and CVC were willing to raise their commitments to as much as $2.25 billion (Rs 18,675 crore) and $1.5 billion (Rs 12,450 crore), respectively, if Torrent’s talks with other capital pools — including domestic shadow banks and mutual funds — failed.
Separate discussions with foreign banks — Standard Chartered, JP Morgan, MUFG, Citi, Barclays Deutsche, SMBC, Morgan Stanley and Investec, among others — to raise as much Rs 32,000-35,000 crore (up to $4.23 billion) against the cashflows of the target as acquisition financing were also finalised. JP Morgan is also advising Torrent Pharma.
At a market value of a little over Rs 1 lakh crore for Cipla, Torrent was working on the assumption that it may have ended up paying a total Rs 59,236 crore ($7.14 billion) for a 59.47% stake in the 88-year-old pharma company, India’s third-largest generics company by revenue.
Led by YK Hamied, the Cipla promoters own 33.47% of the company. Buying them out would have triggered an open offer for an additional 26% in the firm.
Torrent’s current debt-equity ratio is 0.9:1 and is expected to be 0.6-0.7:1 by the end of the current fiscal. For most of the past few years, this has been lower than 1. Thus, analysts saw scope for raising further debt to fund the deal. Torrent’s market value has largely remained flat since mid-September and closed Monday at Rs 63,428 crore.
Cipla Story
Even before the sales talks surfaced, Cipla became a classic turnaround story. Helmed by YK Hamied’s niece, Samina, as executive vice-chairperson, it has professionalised the management after Amar Lulla died in 2012. The company improved its performance significantly under former Dr Reddy’s executive Umang Vohra.
In February 2022, the family pared its 36.11% stake by selling 2.5% in Cipla in block deals. At the time, the founders assured investors that they remained fully committed and invested in Cipla’s future.
In the last seven years since Vohra took over, Cipla’s revenues have risen 55% — to Rs 22,753 crore in FY23 from Rs 14,630 crore in FY17. During the period, profit nearly tripled to Rs 2,802 crore from Rs 1,006 crore and profitability improved. The Ebitda margin rose to 22% from below 18%. Debt dropped to Rs 520 crore at the end of FY23 from Rs 4,113 crore in FY17. Mirroring the improved performance, the pharma company’s stock price doubled during the period.
