Cipla Buyout Battle: Dr Reddys, Bain Capital to team up for joint bid? Drugmaker issues statement
New Delhi: The buyout battle for 33.47 percent promoter stake in Cipla, owned by the Hamied family has intensified as US-based private equity firm Bain Capital, LP, has purportedly initiated discussions with Dr. Reddy’s Laboratories to explore the possibility of a joint bid for the promoter stake.
After global private equity firms like Blackstone and Indian companies such as Torrent Pharma expressed their interest in acquiring Cipla, now Dr. Reddy’s has been evaluating this opportunity and considering its response to Torrent Pharmaceuticals Limited, the sole Indian strategic investor competing for the Hamied family’s stake, says various media reports.
Cipla currently holds a significant market share in various therapy segments, particularly in areas such as respiratory and urology, as well as chronic and anti-infectives segments. If Dr. Reddy’s Laboratories decides to submit a bid and it succeeds, the merged entity would become the second-largest Indian-origin pharmaceutical company in terms of domestic revenue, capturing a consolidated market share of 8 percent, based on June 2023 Indian Pharmaceutical Market (IPM) data. This would also hold true for the US and emerging markets, significantly impacting the pharmaceutical landscape.
While awaiting an official confirmation, analysts have noted that the buyout could yield synergistic benefits but would also carry specific risks.
However, Dr. Reddy’s, in an exchange filing, recently clarified that it would refrain from commenting on market speculation, stating, “Currently, there is no event or information that necessitates disclosure under Regulation 30 of the SEBI Listing Regulations.”
On the other hand, Torrent Pharmaceuticals, headquartered in Ahmedabad, has already submitted a non-binding bid for ownership of Cipla, a pharmaceutical company founded in 1935.
This bid places Torrent Pharma in competition with private equity firms like Blackstone Inc. and Baring Private Equity Asia-EQT (BPEA-EQT). Bain Capital is actively engaged in discussions with Torrent to secure potential financing of up to $1 billion as part of a financial plan for a potential acquisition exceeding USD 7 billion. If successful, this acquisition would rank among the largest in India's history.
Meanwhile, industry sources have suggested that Torrent Pharma is actively working on securing the necessary financing to acquire Cipla. If successful, this acquisition would mark one of the most significant transactions in the Indian pharmaceutical industry to date, potentially involving a massive equity infusion of approximately Rs 8,300 crore or around $1 billion from one or more private equity investors.
Torrent Pharmaceuticals, like Dr. Reddy’s, also stated on September 1 that it has no information necessitating disclosure under listing regulations and would not comment on speculative reports in the absence of verifiable data. If this deal proceeds successfully, it would significantly elevate Torrent Pharma’s position in the pharmaceutical industry, making it the second-largest company in India by revenues. Cipla’s revenue for the financial year 2023 is more than double that of Torrent Pharma. In the domestic formulation business, it would surpass the current market leader, Sun Pharma.
How the potential acquisition might affect Dr. Reddy's.
According to Abdulkader Puranwala, a pharma analyst at ICICI Securities, Dr. Reddy's is better positioned than Torrent Pharma to acquire Cipla. Overall, the merger is considered neutral and marginally positive for Dr. Reddy's, as their portfolios complement each other, according to an analyst from an Indian brokerage who told BQ Prime on the condition of anonymity.
While raising a substantial amount of debt is not a problem for Dr. Reddy's, their historical track record in managing acquisitions has been average, as noted by the source. Puranwala also pointed out that Dr. Reddy's, with its presence in the U.S., can easily raise capital from outside India, has a cash-rich balance sheet, and is better suited to absorb Cipla's acquisition.
This acquisition could help Dr. Reddy's achieve its goal of being one of the top 10 players in the Indian market, which it has been struggling to achieve organically. Currently, India contributes only 20% towards Dr. Reddy's revenue, and it has no presence in the respiratory therapy segment, where Cipla has a strong foothold. Additionally, in the U.S., Dr. Reddy's is facing challenges in growing its base business (excluding Revlimid), and the Cipla acquisition, with its launch pipeline, could address Dr. Reddy's U.S. growth challenges, Puranwala told BQ Prime.
The potential acquisition is expected to create synergies in both the Indian and U.S. markets for the drugmaker, providing a significant opportunity for growth and expansion.
