Dilip Shanghvi Calls Sun Pharma's USD 11.75 Billion Organon Deal "Exciting Yet Anxious" Amid Debt Push
New Delhi: Sun Pharmaceutical Industries' acquisition of US-based Organon & Co at USD 11.75 billion enterprise valuation is both a "happy" and "bit anxious" moment, considering the large nature of the transaction and debt required to fund it, its Executive Chairman Dilip Shanghvi said on Monday.
Addressing a media conference in Mumbai, Shanghvi asserted that although the company is “debt-averse”, it is “not risk-averse” and the acquisition opportunity, despite coming at a turbulent time globally, “generally would be difficult to get if all times are normal”.
Apart from other synergies, two of the main gains for Sun Pharma from the Organon acquisition are entering the Chinese market and getting a foothold in the global biosimilars business.
“I am happy, excited, (and) also a little bit anxious. It’s a large transaction that we are entering into,” he said.
Noting that the Organon acquisition reminds him of the Ranbaxy transaction, Shanghvi said, “At that point of time we were a much smaller company, but at that time also we were buying another company which was almost 80 per cent of our company in terms of size.”
He further said, “We did not pay for that acquisition through cash, but we paid for that acquisition through a much more expensive currency. We paid through our stock and dilution to Sun Pharma shareholders was close to 20 per cent.”
Organon in terms of size, he said, “is more or less the same as that of Sun Pharma. In terms of profitability, it is maybe even a little bit higher than Sun Pharma, however, the transaction values Organon at less than 25 per cent of the Sun Pharma valuation.”
The key difference, he said, is the difference in the growth trajectories of the two companies, adding that while “Sun has been consistently growing, Organon has not been growing”.
Sun Pharma said the acquisition will be financed with USD 2-2.5 billion of cash on hand and the balance USD 9.25-9.75 billion to be funded through committed financing from banks.
Referring to the debt, Shanghvi acknowledged some of the concerns that people have expressed were “related to the large size of debt that we might have to raise to pay for the company”.
“This debt, even though large in terms of the overall size, is still going to be 2.3 times the combined company EBITDA, and we have a focused effort towards finding a way to minimise the debt by repaying it as early as possible,” he asserted.
Stressing that Sun Pharma has been “either a low-debt or maybe a certain cash-positive company for a long time”, he said, “Even the debt that we got as a result of the Ranbaxy acquisition, we found a way to repay it in the shortest possible time”.
Similarly, for the Organon acquisition, he said, “That would be our effort, that would be our focus, but we will still have the ability to do business development deals, and we will focus on investing our investable surplus into products which are close to market, and products in therapy areas of our interest.”
On the rationale behind taking a huge debt for the acquisition, especially at a time when there is turbulence globally, he said, “As a company, we ourselves are debt-averse. However, we are not risk-averse. At some point of time when we think that the debt will help us scale the business and change the trajectory of the business, we are comfortable with debt.”
He further said, “Whatever challenges that we have, if we manage risk properly, it should be possible for us to progress and in this turbulent time, you have an opportunity to do things which generally would be difficult to get if all times are normal.”
Citing the company’s internal assessment of the future cash flow and its ability to repay the debt, Shanghvi expressed confidence in its ability to bring its debt ratio down to a much more reasonable level.
“It’s not a very high debt ratio, even though the amount of debt would be significant, but we should be able to repay the debt within a reasonable period of time. We have been disciplined about repaying debt in the past, and we will continue to be disciplined post the closing of the transaction,” he asserted.
Shanghvi also said the decision for the acquisition, despite the large debt requirement, was taken while keeping his family members informed.
“I keep my family involved in that decision, because many of the implications of the decisions they have to live with, as I may possibly not be there at some point. It is a decision that we have entered into consciously,” he noted.
On the possibility of impact of the transaction on dividend payouts, he said, “As on today, when we have done the cash flow calculations and our desire to repay the debt, I think we have kept a provision so that we will continue to maintain the dividend.”
Noting that for those who invest in emerging markets, dividend is one of the attractions for them to invest, he said, “What decision we will take on the future dividend policy, we will factor in this preference and liking of our shareholders while taking a decision, and we will keep people informed.”
Shanghvi said the Organon acquisition gives Sun Pharma a global presence.
“It gives us the ability to licence products globally, also launch many of the products that we already have in our pipeline in many geographies where we are not currently present, and those are interesting geographies for us,” he added.
He further said, “It gives us opportunity in new markets where we are currently not present. We are not present in most of the countries in South America, Korea, Taiwan, China. We get direct presence in the Middle East, even Turkey, and many countries there where we have no presence through the Organon acquisition.”
Stressing the need to have a presence in China, Sun Pharma Managing Director Kirti Ganorkar said, “Any pharmaceutical company which wants to become global must be present in China, because China has become the world’s second biggest market today. It is USD 150 billion, growing at 5-7 per cent.”
Organon’s presence in China is substantial and FY25 revenues stood at over USD 800 million, he added.
The deal also enables Sun Pharma’s entry into biosimilars as a top-10 global player.
Shanghvi said initially Sun Pharma was not in the biosimilar segment due to lack of regulatory clarity on “substitution as well as interchangeability”, and now with greater clarity, it justifies the investments.
“We will continue to look out for opportunities to in-licence products from people who have the ability to bring these products to market, to be first to come to the market,” he said on the focus and priority related to biosimilars.
