Torrent Pharmaceuticals Quashes Deal To Buy Sanofi's Europe Business
Torrent Pharmaceuticals backed off from a deal with Sanofi’s European generic business, which was valued at $2 billion (Rs 160 billion), sources said, adding Torrent felt the deal value was high.
Torrent was in the race for Sanofi’s generic drugs unit, Zentiva, and was preparing a binding bid of $2 billion. It had also appointed JP Morgan and JM Financial to help raise Rs 15 billion through qualified institutional placement (QIP) for the deal. Besides, it had tied up with lenders to raise another Rs 130-140 billion to fund the potential acquisition. The company, however, has chosen to opt out of the bidding process and also dropped its QIP plan.
According to the sources, “The deal valuation was high. Also, the company is at present working on integrating Unichem’s business with its own domestic business.” Sanofi’s European business was valued at 13 times its operating profit.
Sources said Torrent was also in talks with private equity (PE) firms to raise funds. However, the negotiations did not work out according to the plan.
“PEs came with stiff riders, as anyone who takes a look at their (Torrent’s) balance sheet knows there is not much room to raise this kind of debt. While this meant a significant dilution of promoter stake, it also implied there was no room for error. One US Food and Drug Administration warning letter could throw things completely off-track,” an insider close to the development said.
Torrent had a debt-equity ratio of 0.52 - at the end of the nine months of 2017-18. “Raising around Rs 130 billion would have pushed the ratio further and the balance sheet would have been stretched. Torrent does not have much cash in its books,” said Amey Chalke, an analyst with HDFC Securities.
Some analysts said Torrent was not serious about the deal but was trying to gain a perspective on European market valuations. “They would have gone for the deal, had the asset been offered cheap, without any other bidder. However, at current valuations, the deal did not seem feasible for them,” Chalke said.
According to reports, apart from Torrent, Brazilian firm EMS and PE firms Blackstone and Carlyle were shortlisted for the bidding process.
Torrent’s interest in Europe comes from the fact that this is the third largest market for Indian drugmakers, after the United States and Africa. Around 60 percent of all medicines consumed in Europe are generics.
Torrent draws around 40 percent of revenue from its Indian business. It is focusing on integrating the Unichem business it recently acquired. The firm is trying to repeat what it did with its Elder acquisition four years ago, with the portfolio of 120 brands it acquired from Unichem. Torrent has more than doubled the Elder portfolio it had acquired.
It has now added a 2800-field force from the Unichem acquisition and now has 5,000 medical representatives (MR) for the India business. Unichem’s current MR productivity is lower than Torrent’s, which stands at Rs 600,000 per MR per month. Torrent is in the process of placing its own people in some key divisions of Unichem's business. The aim is to boost MR morale and improve their productivity.