Glaxo makes $1B open offer to raise stake in Indian pharma arm

Global drug maker GlaxoSmithKline Plc (GSK) has made a voluntary open offer to raise its holding in its Indian pharma arm GlaxoSmithKline  Pharmaceuticals Ltd from 50.7 per cent to 75 per cent in what may cost it up to Rs 6,386 crore or a little over $1 billion, the company announced this morning.

The British company has made the open offer to acquire 20.6 million shares which represent 24.3 per cent in the company for Rs 3,100 per share. This means the firm is not immediately looking to delist the Indian arm. As per listing norms, firms need to maintain at least 25 per cent free float or public holding which limits the total permissible promoter holding at 75 per cent. The offer is being managed by HSBC Securities and Capital Markets. Subject to regulatory clearance, the offer period is expected to begin in February 2014.

GlaxoSmithKline Pharmaceuticals scrip shot up around 19 per cent in early morning trade on Monday and was quoting at Rs 2,932.75 a share. The scrip had closed at Rs 2,468.4 a share on Friday which means the open offer is at a premium of over 25 per cent.

The company will fund this transaction through its existing cash resources; the deal will be earnings neutral for the first year and accretive after that. This will not affect expectations for the group’s long-term share buyback programme, the company said in a release.

In February, GSK completed an open offer for its separate listed Indian consumer products arm GlaxoSmithKline Consumer Healthcare Ltd from 43.2 per cent to 72.5 per cent for around $900 million as per forex rates back then. With the latest move, the British firm could be spending close to $2 billion to increase its stake in both its local companies.

“For GSK this transaction will increase exposure to a strategically important market and for our Indian pharmaceuticals subsidiary’s shareholders we believe it offers a good liquidity opportunity at an attractive premium," David Redfern, chief strategy officer of GSK, said in a statement.

GlaxoSmithKline Pharmaceuticals is one of the largest players in the highly fragmented pharmaceutical market in the country.

“Today’s announcement is a further demonstration of our long-term commitment to the country having increased our holding in our consumer business earlier this year and more recently committed to a significant manufacturing investment,” Redfern said.

This has been a difficult year for GSK’s Indian pharmaceutical arm, especially because of the drug price row. Earlier this year, the government revised the National Pharmaceutical Policy, increasing the number of drugs under price control to 348 from 74. GSK’s local arm is one of the key suppliers of essential drugs under price control.

This led to a slugfest between traders and pharmaceutical companies as the former demanded drug makers maintain the commission of the drugs under price control. For GSK, 30 per cent of its drugs came under the new price control compared with 24 per cent earlier.

Earlier this year, GSK announced that retailers were not buying its drugs which led to the company’s net profit tumbling by 33 per cent for the quarter which ended September 30, 2013.

Stockists and retailers resumed picking its products from the last week of November.

(Edited by Joby Puthuparampil Johnson)

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