Torrent Pharma not planning to make leadership changes after buying JB Pharma

Ahmedabad-based drugmaker Torrent Pharmaceuticals will not to make leadership changes at JB Chemicals and Pharmaceuticals, its management told investors in a call on Monday, a day after the announcement of its nearly ₹19,500-crore deal to acquire a controlling stake.

Torrent said on Sunday that it would acquire a controlling stake in JB Pharma from global investment firm KKR, at an equity value of ₹25,689 crore. The deal will be followed by a merger of the two entities. The deal is expected to be completed in 15-18 months, and is likely to be funded through debt.

“At this stage, all we can share is that there is no intention to change anything in business as usual,” Aman Mehta, whole time director and managing director-designate at Torrent Pharmaceuticals, told investors when asked about leadership plans for JB Pharma.

“In terms of how we plan to integrate, we do recognize that the scale of this acquisition is far larger than our past ones. So it's not really comparable in that sense,” said Mehta. “...directionally, even in this case, it should be fairly similar to what we've seen in the past three deals,” he added.

In the last five years, under the leadership of chief execuitve officer Nikhil Chopra, JB Pharma has emerged as one of the fastest growing pharma companies in India. Chopra, who was previously executive vice president—India business at Cipla, was brought on after investment firm KKR acquired a 54% stake in JB Pharma from the promoters, the Mody family, in July 2020 for about ₹3,100 crore, or ₹745 per share.

Torrent’s management declined to share specifics on future plans for the deal.

The transaction is expected to be EPS (earnings per share) accretive by FY28, which would be the first year of the merged entity, said Sudhir Menon, chief financial officer at Torrent Pharma.

The deal

Torrent is acquiring a 46.39% equity stake (on a fully diluted basis) in JB Pharma through a share purchase agreement for ₹11,917 crore at ₹1,600 per share, followed by a mandatory open offer to acquire up to 26% of the company’s shares from public shareholders, at an open offer price of ₹1,639.18 per share, amounting to about ₹6,843 crore.

Torrent also intends to acquire up to 2.80% of equity shares from certain employees of JB Pharma at the same share price as KKR, that is ₹1,600 per share, totalling about ₹719 crore.

The acquisition will be followed by a merger between Torrent and JB Pharma through a scheme of arrangement, subject to necessary regulatory approvals.

The acquisition will provide Torrent access to a fast-growing India franchise, with JB’s leading brands in the chronic segment, and entry into untapped therapeutic areas like ophthalmology, and IVF.

Following the deal, Torrent moves up the rank in the Indian drug market from the 7th position to 5th position. “If the double digit growth sustains in merged entity, we think Torrent can become #4 ranked company in India in 3-4 years,” said brokerage Nuvama in a note.

The deal also facilitates Torrent’s entry into the contract development and manufacturing organization segment. It will also aid consolidation in key international markets.

“Although JB Chemicals has been operating efficiently under KKR's ownership, the merger is expected to unlock further value through the reduction of corporate costs and potential synergies in the field force, particularly as both companies have a strong presence in cardiology and gastroenterology therapies,” analysts at JM Financial said in a note.

Torrent is likely to finance the deal through debt.

“At the outset, the leverage required for this transaction is looking quite comfortable from a servicing point of view. However, depending on the MTO (mandatory tender offer) outcome, which is a variability which is there, we will see if equity mix is required at all,” Menon told investors.