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Global private equity fund Blackstone’s plan to submit a non-binding bid to acquire the entire 33.47% promoter stake in Cipla, India’s third-largest generics company by revenues, has sparked a debate over the company’ future.
Cipla shares advanced as much as 6.31 per cent intraday as the scrip scaled an all-time high of Rs 1,238.55 on Friday after reports hinted that the PE firm could make a bid next week.
Blackstone’s acquisition could potentially lead to the exit of the Hamied family, which founded the company in 1935. If successful, this would mark one of India’s biggest and most substantial private equity-led buyouts.
Individuals aware of the matter said if this deal comes to fruition, Blackstone would trigger an open offer for an additional 26% in the company. This could technically result in Blackstone owning up to 59.4% of the pharmaceutical major.
The capacity of the incoming promoter to influence the company, pharmaceuticals analysts have said, will rest heavily on their field of expertise. The potential change of promoter at Cipla, could redirect the company’s strategic direction. However, according to Tushar Manudhane, Research Analyst at Motilal Oswal Financial Services Ltd., this shift might not lead to a drastic impact considering the company’s professional setup.
“Cipla is a professionally run company. Any change in promoter will have a marginal impact on its business operations. However, the extent of this impact is also influenced by who eventually steps in as the new promoter, should this transition occur. The course of Cipla’s future can largely be contingent on the background of the new promoter and their approach towards steering the company,” said Manudhane.
“If the incoming promoter comes from a financial investment background, the company’s strategic operations could possibly see minor modifications initially. This is because a financial investor brings a keen understanding of the business’ financial metrics and markets, with the potential objective to optimize the company’s profitability and value. Their primary focus, at least at the start, would presumably be on improving Cipla’s financial health and performance, rather than radically transforming its strategies,” he said.
The development signifies a significant potential shift in the Indian drug market dynamics. Senior Congress leader, Jairam Ramesh on Friday expressed his disappointment over the potential acquisition of Cipla, by Blackstone. Ramesh, the chairman of the Parliamentary Standing Committee on Science and Technology, Environment and Climate Change called the news as “distressing”.
He said that Cipla, established in 1935 by Khwaja Abdul Hamied, is deeply rooted in India’s socio-political and economic history. Hamied was significantly influenced by key Indian figures, including Mahatma Gandhi, Jawaharlal Nehru, Sardar Patel and Maulana Abul Kalam Azad, and notably contributed to the creation of the Council of Scientific and Industrial Research.
Ramesh, through a series of tweets, said Cipla’s unparalleled position in the pharmaceutical industry, particularly for its role in producing low-cost generic medicines globally. He praised Hamied’s son, Yusuf Hamied, for turning Cipla into a global supplier of affordable drugs, effectively breaking American, German and British monopolies and patent holders.
Yusuf Hamied’s efforts also opened doors for other Indian companies to establish themselves internationally. Ramesh described Yusuf as one of the most likeable and successful business leaders he has known. Ramesh ended his statement expressing his concern and nationalistic sentiments on the ‘impending takeover’ of Cipla by Blackstone, indicating that this development should cause distress to everyone given Cipla’s prestigious standing in India’s history.
Based on Cipla’s current market valuation of Rs 94,043 crore, the promoter stake alone is valued at Rs 31,476 crore, or approximately $3.80 billion. For the time being, Blackstone is believed to be acting alone on this venture. However, it is anticipated that it may form a consortium with a select few limited partners (LPs).
Meanwhile, Cipla in a stock exchange filling on 27th July said, “We hereby clarify that the Company is not aware of any event that requires disclosure under Listing Regulations. The Company will make appropriate disclosure in compliance with the Listing Regulations as and when any such requirement arises.”
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