Key Highlights :
Torrent Pharma to buy controlling stake in JB Chemicals for RS25,689 crore in the first tranche with a 46.39% stake at RS1,600 per equity share.
Deal makes Torrent India's second-largest pharma firm, bolstering its chronic and CDMO strengths.
Key Background :
Transaction is one of the largest in India's pharma industry by Torrent Pharmaceuticals' acquisition of JB Chemicals. The deal will be made in stages. Firstly, Torrent will acquire 46.39% stake in JB Chemicals from private equity company KKR for RS11,917 crore. The price of RS1,600 a share was settled on both the promoter and worker stakes. Secondly, Torrent will make a mandatory open offer for another 26% stake from the public shareholders at a bit higher price of RS1,639.18 a share.
This strategic purchase demonstrates Torrent's optimism on JB Chemicals' strategic position and long-term value. With the acquisition of a majority stake in a business boasting a robust presence in the chronic therapies sector as well as an expanding CDMO business, Torrent greatly increases its presence in both Indian and foreign pharmaceutical businesses. Once successfully executed, the merger will allow Torrent to solidify its position as India's second-most valuable pharma business.
The market responded sharply to the news. Torrent Pharma's stock jumped almost 4% intraday, reaching a high of RS3,474.60, spurred by investor enthusiasm for the synergies and economies of scale on offer in the deal. JB Chemicals' stock fell by nearly 6%, with investors responding to the open offer price being lower than the current market price. This pricing difference caused some short-term volatility, although long-term sentiment is largely bullish.
Brokerages presented differing views. Nomura maintained a "Neutral" stance, pointing to the transaction size, although it noted Torrent's excellent record with previous acquisitions. HSBC highlighted strategic justification for the deal in Torrent's better placed positioning in chronic treatments and JB Chemicals' CDMO business. At the same time, it indicated possible earnings pressure from interest expenses of the leveraged takeover. While, Motilal Oswal referred to the deal as value-accretive, predicting strong growth numbers in revenue, EBITDA, and profit in the following three years of finance.
The structure of the deal also has a share-swap arrangement. Shareholders of JB Chemicals will get 51 Torrent shares for each 100 of their shares, bringing ownership and operating merger on par. The transaction is subject to various regulatory approvals and shareholder approvals such as from SEBI, the Competition Commission of India (CCI), and National Company Law Tribunal (NCLT). The timeline of completion is estimated to be about six months.
Torrent has established a track record of effective integrations of acquired companies such as Elder Pharma, Unichem, and Curatio. The company has broadened its therapeutic portfolio as well as geographic presence with each acquisition. This acquisition of JB Chemicals is consistent with Torrent's inorganic as well as organic growth strategy, taking advantage of market consolidation to generate long-term shareholder value.