Biocon announced today afternoon that it will be acquiring the biosimilars business of Viatris Inc for $3.335 billion through its arm, Biocon Biologics Ltd (BBL).

This acquisition will be through cash worth $2.335 billion, to be funded $800 million raised through equity infusion in BBL and the remainder to be funded by debt, additional equity or a combination thereof.

The company will fund the balance via preference shares wherein Biocon Biologics will issue $1 billion of compulsorily convertible preference shares (CCPS) to Viatris. This means at the end of the deal, Viatris will have an equity stake of at least 12.9% in the company, on a fully diluted basis.

The transaction is expected to close in 2H-2022, subject to satisfaction of closing conditions (including certain regulatory approvals). The companies will also enter into a Transition Services Agreement, pursuant to which Viatris will provide certain transition services, including commercialization services, for an expected two-year period. Viatris also will pay $50 million to BBL to fund certain capital expenditures.

Explaining the financial rationale, Biocon said that post closure of the deal, BBL will realize the full revenue and associated profits from its partnered products; a step-up from its existing arrangement with Viatris. The deal will expand BBL’s EBITDA base and strengthen overall financials, enabling investments for sustained long- term growth.

The market has clearly given this deal a thumbs down. The stock opened slightly higher at Rs.397 from its previous close of Rs.394.15 but once the announcement came, it slipped down to an intraday low at Rs.360, down over 8.5% and is also currently trading around the same levels. Its not too far from its 10% LC of the day at Rs.354.75.