“Torrent Pharmaceuticals in Advanced Talks with CVC Capital for Funding Cipla Acquisition Worth $7 Billion”
Torrent Pharmaceuticals is in discussions with CVC Capital Partners to raise substantial funds, around $1.2-1.5 billion, as part of a financing package to acquire pharmaceutical rival Cipla. The acquisition is one of the largest in recent times, with Torrent actively exploring various avenues for funding to conclude the process by the end of September.
Torrent Pharmaceuticals Ltd, a prominent player in the pharmaceutical industry, is making significant strides towards acquiring its rival pharmaceutical company, Cipla. In an effort to secure substantial financing for this monumental acquisition, Torrent is currently in advanced discussions with CVC Capital Partners to form a consortium and raise a substantial sum, estimated to be between $1.2-1.5 billion. This financial initiative is part of Torrent’s comprehensive plan to assemble a substantial acquisition financing package of approximately $7 billion (Rs 60,000 crore).
The sheer magnitude of this acquisition financing package underscores the significance and scale of the proposed deal, making it one of the largest in recent times. Torrent had previously initiated discussions with various private equity funds, including Bain Capital, for potential participation in the consortium. However, it appears that CVC Capital Partners is poised to take the lead in this endeavor, according to reports from the Economic Times on September 18.
While the report remains unverified by independent sources, Torrent Pharmaceuticals is actively exploring multiple financing options to support its ambitious acquisition plans. In addition to discussions with CVC Capital Partners for a substantial investment, Torrent is also in talks with Brookfield to secure mezzanine debt in the range of $1-1.2 billion (approximately Rs 8,300-9,000 crore). This strategic financial maneuver involves leveraging the high promoter ownership by structuring the debt as share-backed promoter financing. Unlike traditional pledging of shares, this approach allows the sale of stocks, offering greater flexibility.
The exact amount of funds required has not been finalized, but Torrent is diligently exploring various avenues to secure the necessary financing. The company aims to conclude this financial process by the end of September, paving the way for a formal offer for the acquisition of Cipla. Sources indicate that both CVC Capital Partners and Brookfield possess the capacity to increase their commitments up to $2.25 billion and $1.5 billion, respectively, should Torrent’s discussions with other capital sources, including domestic shadow banks and mutual funds, prove insufficient. This adaptable approach underscores their unwavering determination to secure the requisite funds for the acquisition.
Experts believe that the acquisition will demand a substantial combination of debt and equity dilution. Given the robust cash flows of both Cipla and Torrent and Torrent’s significant promoter stake, analysts believe that the deal is feasible. Assuming leverage of 3-5x FY25 EBITDA, Torrent could potentially raise approximately Rs 10,000-20,000 crore of debt. Additional equity infusion from PE investors and other sources, estimated at Rs 20,000-40,000 crore, may be necessary to facilitate the acquisition.
To arrange a senior debt facility, several international banks, including Standard Chartered Bank, Barclays, MUFG (Mitsubishi UFJ Financial Group), Citi, and Morgan Stanley, are concurrently participating. This facility is expected to range from Rs 30,000-32,000 crore (approximately $3.8 billion) and will have a tenure of three years. Its structure will be based on the cash flows generated by both Torrent and Cipla, signifying a significant financial arrangement integral to the acquisition plans.
Salon Mukherjee of Nomura expressed confidence in the deal’s potential, stating, “The acquisition will require large debt and equity dilution. With strong cash flows of Cipla and Torrent, and high promoter stake in Torrent Pharma, we think the deal can be consummated. The Torrent promoters can retain 48-63 percent in Torrent Pharma post-acquisition. Assuming leverage of 3-5x FY25 EBITDA, we estimate Torrent could potentially raise approximately Rs 10,000-20,000 crore of debt. Assuming Rs 10,000-20,000 crore of infusion by Torrent’s promoters, it would require an additional Rs 20,000-40,000 crore equity infusion from PE investors and other investors.”
As Torrent Pharmaceuticals advances in its pursuit of Cipla, the pharmaceutical industry awaits further developments in what promises to be a transformative acquisition in the sector.
Sources By Agencies
About The Author
