Cipla in advanced talks with 2 groups

The consortium led by Torrent Pharma is backed by its promoters, the Mehta family, alongside investments from entities linked to Dilip Shanghvi-led Sun Pharmaceutical Industries Ltd and the Patel family-owned Zydus Lifesciences Ltd.

A successful bid by Torrent Pharma would propel the company into the second-biggest Indian drugmaker after Sun Pharma.

Cipla’s promoter group, led by its founder’s son Yusuf K. Hamied, 87, is seeking a valuation of at least ₹33,000 crore for its 33.47% stake and will only cede control if binding bids value the drugmaker at ₹1 trillion, according to one of the two people.

“The latest discussions with Cipla promoters’ bankers regarding valuations and the premium to market price happened on Friday," said the first person, who added that Cipla’s promoters want a price of a little over ₹1,200 per share. Cipla’s shares ended trading at ₹1,180.50 on Wednesday, valuing the company at ₹95,300 crore.

Any change in promoter control will also trigger a mandatory open offer, requiring the buyer to offer to acquire as much as 26% from Cipla’s shareholders.

“The total amount required for the acquisition could be at least ₹51,000 crore ($6.1 billion)," the first person said.

Typically, in takeovers, the acquirer offers a premium to the promoters of the target firm and a non-compete or royalty fee.

“If the bidder offers a 10-20% premium to the market price of Cipla for giving up control, more than 26% public shareholders may tender their shares in the open offer, which would require the acquirer to bring in more funds. So, the actual size of the promoter exit deal could go up to $7 billion or more," one of the two people said.

According to the people, one or two members of Cipla’s promoter family may retain about 5% of the company as non-promoter shareholders even after the proposed promoter exit.

The sale has been necessitated due to a lack of clear successors in the Hamied family to run Cipla, according to several investment bankers.

While Kotak Mahindra Capital is advising as the banker for Cipla’s promoters, JPMorgan has been hired as the banker for Torrent Pharma’s promoters for the deal.

A spokesperson for JPMorgan declined to comment. Emailed queries sent to spokespeople for Cipla and Torrent Pharma remained unanswered. Emails sent to spokespeople for Sun Pharma and Zydus Lifesciences did not elicit any response.

“The Hamied family wants an all-cash deal. So, the promoter stake buyout will need $3-3.5 billion. Torrent’s promoters will be helped by the family offices of promoters of other business houses at this stage. And, for this, the family offices will get certain small stakes in Cipla. Post the open offer, the Torrent Pharma promoters will own the largest stake and be the sole promoters as per the latest discussions," the first person said.

“According to the takeover plan, post the buyout of a majority promoter stake in Cipla, private equity (PE) firms, including Bain Capital and Apollo Global, will be financing the promoters of Torrent Pharma with another $3-4 billion for funding the mandatory open offer," the first person said.

A spokesperson for Bain Capital declined to comment, while a query sent to Apollo Global remained unanswered.

The Cipla takeover bid being discussed with bankers by the consortium led by BPEA EQT and General Atlantic includes a direct fresh cash deal for the Hamied family’s stake and an investment from the existing corpus of some of the emerging market funds managed by the two global PE giants.

Other PE firms will likely join the consortium to meet the $6-6.5 billion requirement. “Certain LPs (limited partners) could also co-invest alongside them. The final contour is not known," the second person said.

A spokesperson from General Atlantic declined to comment, while an email sent to Baring PE did not elicit any response.

However, the fate of the Cipla takeover involves tricky issues due to its rich legacy.

Cipla today operates across 47 manufacturing locations globally and sells products in 86 countries. The firm has manufactured and supplied affordable generic drugs for treatments of several diseases and ailments since the country’s Independence.

During the deadly Aids epidemic in the early 2000s, Cipla reverse-engineered a three-drug antiretroviral cocktail that was originally sold for about $12,000 a year to create a cheaper version that sold for only $304.

This drug was then sold to other poor and developing nations, including African charities and governments. At one time, as much as 40% of the Aids patients in poor countries took Cipla drugs. During the avian flu pandemic in 2006, Cipla reverse-engineered the drug Tamiflu and sold it significantly cheaper.

US-based Blackstone, which was earlier in discussions with the Hamied family to take over Cipla, has exited the race following criticism from certain political leaders.

On 4 August, veteran Congress leader Jairam Ramesh took to social media site X (erstwhile Twitter) to express his ‘sadness’ over the deal. Sharing a media report on X, Ramesh said the pharma giant is an integral part of the country’s political, economic and social history, and its “impending takeover by Blackstone should sadden all of us."