Torrent Pharmaceuticals shares rallied as much as 4 percent to Rs 3,479 on Monday, June 30, before paring all gains after it signed definitive agreements to acquire a controlling stake in JB Chemicals and Pharmaceuticals (JB Pharma) from global private equity firm KKR at an equity valuation of Rs 25,689 crore (fully diluted basis).
The transaction, followed by a merger of the two entities, will make Torrent the second most valuable pharmaceutical company in India. This marks the second-largest deal in India’s pharma sector, behind Sun Pharma’s 2015 acquisition of Ranbaxy. Moneycontrol was the first to report that KKR was in early talks to sell its stake in JB Pharma to Torrent.
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The transaction will unfold in two phases. In the first, Torrent will buy 46.39 percent in JB Pharma from KKR for Rs 11,917 crore. It may also acquire up to 2.8 percent from certain employees at a price not exceeding Rs 1,600 per share, and launch an open offer for an additional 26 percent stake at Rs 1,639.18 per share.
In the second phase, Torrent and JB Pharma will merge under a scheme of arrangement, where JB Pharma shareholders will receive 51 Torrent Pharma shares for every 100 held.
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The deal gives Torrent access to JB Pharma’s strong chronic portfolio and opens up new therapeutic areas such as ophthalmology. It also marks Torrent’s entry into the high-potential contract development and manufacturing (CDMO) space, while enhancing its presence in key global markets.
Nomura maintained a ‘Neutral’ rating on Torrent Pharma with a target price of Rs 3,580, implying a 7 percent upside from the last close. The brokerage said investors are likely to take comfort in Torrent’s successful track record with past acquisitions and its established M&A framework. While the deal is expected to yield near-term cost synergies and long-term revenue gains, Nomura flagged the size of the transaction as notably larger than Torrent’s previous buyouts.
HSBC has maintained a ‘Buy’ rating as it believes the deal will strengthen Torrent’s position in chronic therapies in India and expand its capabilities in the international contract development and manufacturing (CDMO) space. HSBC flagged a likely near-term earnings impact due to higher interest costs and amortisation, but sees the acquisition as the next leg of growth for the company, pending deal closure.
At about 9:20 am, shares of the company were trading higher by 1 percent while JB Chemicals nosedived over 6 percent.
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