Mumbai, Dec.16: British pharmaceutical giant GlaxoSmithKline Plc (GSK) will spend close to $1 billion (Rs 6,389 crore) to raise stake in its local subsidiary, GlaxoSmithKline Pharmaceuticals (GSK Pharma).
GSK today announced an open offer to acquire over 2.06 crore shares, representing 24.33 per cent of the Indian unit’s equity.
The open offer, if successful, will take GSK Plc’s stake up to 75 per cent from 50.67 per cent.
GSK Plc is offering a price of Rs 3,100 per share, which works out to a premium of nearly 26 per cent over Friday’s closing price of Rs 2,460.15 on the National Stock Exchange.
Buoyed by such a premium and the open offer which indicated the British parent’s confidence in its Indian operations, the GSK Pharma share was locked in the upper circuit on the bourses today. On the BSE, the scrip rose nearly 19 per cent to close at Rs 2,927.40.
Subject to regulatory clearance, the offer period is expected to begin in February 2014.
David Redfern, chief strategy officer at GSK, said: “This transaction will increase our exposure to a strategically important market. For our Indian pharmaceutical subsidiary’s shareholders, we believe it offers a good liquidity opportunity at an attractive premium.”
The transaction will be funded through GSK’s existing cash resources, 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.
In November last year, GSK Plc had made an open offer to acquire an additional 31.84 per cent stake in its consumer products arm, GlaxoSmithKline Consumer Healthcare Ltd, at Rs 3,900 a share, valuing the share buyout at Rs 5,221.87 crore.
Under Sebi regulations, listed companies must ensure a minimum public float of 25 per cent. Although GSK indicated that it had no intention of raising its stake above 75 per cent (which may force it to delist the stock), industry and market circles did not rule out such a possibility over the long term.
Incidentally, the open offer comes a month after GSK announced that it would be investing Rs 864 crore to set up a unit in India. Although the location of the new factory has not yet been finalised, the lead site is in Bangalore. It is expected to be operational in 2017 and when complete, the unit will make up to 8 billion tablets and one billion capsules in a year.
GSK has invested over Rs 1000 crore in India and it has a total employee strength of around 8500.
Analysts said the two developments indicate the confidence of GSK in India as it faces slower growth in the developed markets with many drugs going off-patent.
At the same time however, multinational pharmaceutical giants are discovering the Indian business environment is becoming challenging with talk of widening price controls on essential drug and reports that the government is mulling the possibility of lowering the cap on foreign direct investment in brownfield ventures.
Analysts are urging investors in GSK Pharma to take advantage of the higher price offered and tender their shares and re-enter the counter at a later date.
“The stock would move on the way up on the buyback. The long term shareholders are advised to remain put in the stock, as in the long run when these facilities become operational (from 2017) , the current shareholders can easily make (a gain of) 20 per cent per annum on the stock. However, from a very near term perspective, shareholders should tender the shares as the open offer price is very attractive,” said Sarabjit Kour Nangra, VP-Research at Angel Broking.
The open offer by GSK had a rub-off effect on stocks of other multinational pharmaceutical companies. It raised expectations that they too may want to raise their stakes in their domestic subsidiaries. As a result, counters like Pfizer India, AstraZeneca Pharma India Ltd, Novartis India, Abbott India and Merck closed with gains ranging from 1 to 6 per cent.