Aiming to hike stake in its subsidiary, British pharmaceutical major GlaxoSmithKline Plc (GSK) announced an open offer to buy 24.33 per cent stake in its Indian arm GlaxoSmithKline Pharmaceuticals.
As per the official statement issued, GSK plans to hike its stake to 75 per cent from 50.67 per cent for a total consideration of Rs 6,389.02 crore. Backed by its parent company’s open offer, GlaxoSmithKline Pharmaceuticals stock on Bombay Stock Exchange (BSE) surged by 18.6 per cent.
GSK will acquire 20,609,774 shares of face value Rs 10 per share, representing 24.3 per cent of the total outstanding shares of the Indian firm. The price offered for the open offer is Rs 3,100 per share, GlaxoSmithKline Pharmaceuticals said in a filing to the BSE.
This offer is about 26 per cent premium over the closing price on Friday. GSK will maintain its holding at 75 per cent as mandated by Sebi regulations of 25 per cent public float and it has no intention to take the India arm private.
While GlaxoSmithKline Pharma shares surged 19.59 per cent to a 52-week high on BSE at Rs 2,952, on the NSE, it rose 19.99 per cent to touch a one-year peak of Rs 2,952.15.
Subject to regulatory clearance, the offer period is expected to begin in February 2014, GSK said in a statement. GSK Group Chief Strategic Officer David Redfern termed the deal as reflective of the strategic importance of India for GSK and is part of its long-term view on India.
“GSK has a proud heritage here and this buyback offer further demonstrates our long-term commitment to this market. We had already increased our holding in our consumer business earlier this year and more recently committed to a significant manufacturing investment,” Redfern.
When asked about the rationale behind the offer, especially at a time when there is no policy clarity on FDI and the Government is aggressively pushing up the number of drugs in the controlled list, Redfern said for GSK this transaction will help increase its exposure in this market.
“India is a strategically important for us. We have been in pharma business here for around 90 years, while our consumer business is older than that,” he said.
When sought his view on the Government price control, Redfern said the higher volume can to some extent take care of the lower prices.
“Price control is nothing new, as we have seen it before and is part of a business cycle.... We rather not have the price control but we can definitely manage and we think despite that prospect is still good predominantly due to the grate volume opportunities that exists. We think there is great opportunity to sell more medicines and vaccines here,” he said.
The statement said the deal will be funded through GSK’s existing cash resources, will be earning neutral for the first year and accretive thereafter and will not impact expectations for the group’s long-term buyback programme.