Torrent Pharma In Talks With CVC Capital To Fund Cipla Purchase: Report

Torrent Pharmaceuticals Ltd is in advanced talks with CVC Partners to form a consortium and raise between $1.2 - $1.5 billion from the European buyout fund. This move is a part of Torrent's strategy to assemble a significant acquisition financing package worth Rs 60,000 crore (approximately $7 billion) for the purpose of acquiring the competing pharmaceutical company Cipla, according to a report by The Economic Times.

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It is to be noted that the potential acquisition financing package is one of the largest in recent times. Earlier reports had revealed Torrent’s approach to various private equity funds, including Bain Capital for potential participation in the acquisition.

However, the ET report highlighted that while discussions with Bain Capital are still going on, CVC Partners is likely to be the lead partner in this initiative.

The pharma company is exploring options to support its big acquisition plans. According to media reports, Torrent is also in talks with Brookfield to raise mezzanine debt in the range of $1-1.2 billion (approximately Rs 8,300-9,000 crore), besides CVC Partners.

The founders of Torrent, the Sudhir and Samir Mehta family, possess a 71.25% stake as promoters. The debt is planned to be organized as promoter financing backed by shares, capitalizing on their substantial promoter ownership. This strategic maneuver entails the establishment of a non-disposable undertaking (NDU) in which shares are utilized as collateral for loans, enabling the sale of stocks, in contrast to the conventional pledging of shares that imposes restrictions on share sales.

Both CVC and Brookfield have the capacity to increase their commitments up to $2.25 billion (approximately Rs 18,675 crore) and $1.5 billion (approximately Rs 12,450 crore), respectively, if Torrent's discussions with other capital sources, including domestic shadow banks and mutual funds, do not yield the intended results, sources were quoted as saying by ET.

However, the exact amount of funds hasn’t been finalised yet. The pharma company is actively exploring various roadmaps to secure funds to buyout pharma giant Cipla. The process is likely to be concluded in September before proceeding with a formal offer for the acquisition.

“The company was looking at raising a minimum of $750 million to as much as $2.25 billion through equity. The range is due to the uncertainty over how much of the open offer will be subscribed to. But one needs to show committed financing during submission of a firm offer. If Bain and CVC both partner up with Torrent, then that will also influence the outflow,” sources said.

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“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% 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 other investors,” said Salon Mukherjee of Nomura.