GSK Pharma’s $1B open offer starts on Tuesday

UK-based GlaxoSmithKline Plc’s (GSK) open offer to raise its holding in its Indian arm GlaxoSmithKline Pharmaceuticals Ltd from 50.7 per cent to 75 per is scheduled to start on Tuesday.

The British company last year made an open offer to acquire 20.6 million shares which represent 24.3 per cent in the company for Rs 3,100 per share. This could cost the group up to Rs 6,386 crore or a little over $1 billion.

According to analysts, this comes at a time when the company’s performance has been far from desirable.

"The open offer comes in a time when the company's performance has shown a downfall on account of new pharmaceutical pricing policy, rising competition, higher input cost and INR depreciation,” Dinker Shanbhag, who heads Institutional Equities at Lotus Global Equities, said according to media reports.

Last year was a difficult period for the company due to the drug price row. In 2013, the government revised the National Pharmaceutical Policy, increasing the number of drugs under price control to 348 from 74. Over 28 per cent of company’s current sales come under National List of Essential Medicines (NELM). One of GSK’s biggest antibiotic brand Augmentin could be affected by Rs 40 crore.

"In the last two-three years, GSK's performance has been muted due to a increase in competition from domestic players and increasing material and finished goods cost of the company partially linked with rupee depreciation. Additionally, new pharmaceutical pricing policy has further bowed down on the revenue and profitability of its major brands like Augmentin, etc,” Daljeet S Singh, head of research at India Nivesh was quoted by media reports.

However, it may not be all gloom and doom for shareholders, according to analysts.

"The offer by the parent company for GSK Pharma is attractively priced and investors should take this opportunity and tender their shares" Shanbhag said.

(Edited by Joby Puthuparampil Johnson)

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