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Pharma major GSK to make Rs 6,400-cr open offer to hike stake in Indian arm

The Hindu Business Line:  December 17, 2013

Mumbai: Bullish on the long-term opportunity that India holds, British drug-maker GlaxoSmithKline Plc is set to fork out up to Rs 6,400 crore to increase its stake in its publicly-listed pharmaceutical subsidiary.

In an announcement before market hours on Monday, GSK said it would increase its stake in GlaxoSmithKline Pharmaceuticals Ltd from 50.7 per cent to 75 per cent, at a price of Rs 3,100 a share.

Buoyed by the news, GSK Pharma shares shot up 18.6 per cent to Rs 2,927.40 on the BSE on Monday.

The move comes within a year of GSK upping its stake in its consumer healthcare arm from 43 per cent to 73 per cent, a Rs 4,800- crore transaction. About a month ago, GSK committed to investing Rs 864 crore in a new factory in India, creating 250 jobs.

On the stake-increase, David Redfern, GSK’s Chief Strategy Officer, said the transaction would increase its exposure to a strategically important market. For GSK Pharma shareholders, it would offer a good liquidity opportunity at an attractive premium, he added.

Long-term opportunity

Against the backdrop of price-control measures and patent litigation witnessed in the local market, Redfern told Business Line there were short-term challenges. But the parent company has been investing in India, as it was positive on the long-term opportunity because of an increase in wealth and demand for improved healthcare.

Responding to analyst observations that greater control in the Indian arm would give it greater flexibility in introducing products locally, he said, operations will not be impacted by the decision.

The parent has been continuously reviewing its pharma operations after increasing stake in its consumer healthcare business, he said, adding that there was no specific reason behind the timing of its decision.

In 2009, multinational drug companies Novartis and Pfizer too, had increased stakes in their respective India arms. But, the effort had not been smooth and both companies had to increase their offer price to match their then prevailing share prices.

FUNDING OFFER

GSK does not intend to de-list either consumer healthcare or pharmaceuticals from the local stock-exchanges, Redfern said, adding that it was important to keep both companies listed.

The open offer will be funded through GSK’s existing cash resources. It will be earnings neutral for the first year and accretive thereafter and will not impact expectations for the group’s long-term share buyback programme, the company said.

Offer details

GSK looks to acquire up to 2.06 crore shares, representing 24.3 per cent of the total outstanding shares in the Indian company.

The offer represents a premium of approximately 26 per cent to the company’s closing share price on the National Stock Exchange on December 13. This closing price represents an appreciation of 19 per cent over the last 12 months, GSK said. GSK’s offer is expected to begin in February, pending regulatory clearance.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.