Why Sun Pharma’s hefty bid for Organon has divided investors

Core Viewpoint - India's largest drugmaker Sun Pharma is reportedly bidding for American pharmaceutical company Organon in a deal potentially worth $10 billion, which would mark the largest overseas acquisition by an Indian pharma company [1][2] Group 1: Acquisition Details - Sun Pharma has secured $10–14 billion in temporary 'bridge loans' to fund the acquisition of Organon [1] - The deal would allow Sun Pharma to expand beyond generics into higher-margin specialty and innovative branded markets, aligning with the company's long-term goals [2] - Organon, spun off from Merck in 2021, has a revenue of about $6.4 billion and an EBITDA of $1.96 billion for FY24, but comes with a significant debt of $8.9 billion [5] Group 2: Market Reactions - The potential acquisition has divided market opinions, with some investors supporting the move due to Sun Pharma's strong management and track record, while others express concerns over Organon's debt and governance issues [2][4] - Sun Pharma's stock price saw a decline of 3.23% on the NSE, reflecting investor apprehension regarding the deal valuation and Organon's financial health [4] Group 3: Strategic Implications - The acquisition could enhance Sun Pharma's US sales, increasing its earnings from over $1.6 billion in North America to potentially over $3 billion [7] - Analysts suggest that while Organon is not a growth asset, it has elements that could contribute to earnings growth through cost rationalizations [6] - The deal represents a significant shift for Sun Pharma, indicating a willingness to pursue large acquisitions again, contrasting with its recent strategy of smaller deals [17]