GlaxoSmithKline to spend $1 billion to raise stake in Indian pharma unit - Economic Times

MUMBAI: GlaxoSmithKline Plc (GSK), the UK's largest drug maker, offered to spend up to $1 billion to raise its stake in Indian subsidiary GlaxoSmithKline Pharmaceuticals Ltd through a voluntary open offer, in line with similar moves by other overseas companies and marking its confidence in the local business despite new price controls having sharply eroded sales in the country.

The move will result in GSK investing a total $2 billion dollars or so in its two Indian subsidiaries, indicating the parent's growing confidence in increasing exposure in the country of 1.2 billion people where the pharmaceuticals market is estimated at about Rs 75,000 crore. GSK had offered to raise its stake in GlaxoSmithKline Consumer Healthcare Ltd, the maker of Horlicks, through a voluntary offer earlier this year, sticking to the group's philosophy of growing organically and investing in local businesses.

GSK said on Monday that it was looking to buy a 24% stake in the pharmaceuticals subsidiary for about $1billion or Rs 6,400 crore, at Rs 3,300, a share, a premium of 26% over Friday closing price of Rs 2,468.40. This will take its holding to 75% from 50.7%. The stock surged on the announcement, ending 18.6% up at Rs 2,927.40. There was a knock-on effect on Indian units of overseas drug makers. Merck rose 5.95% to Rs 624.95, while Novartis rose 6.2% to Rs 448.95, while the Sensex shed 0.27% to 20,659.52 points.

The company is committed to investing organically in India instead of going for big-ticket acquisitions, GSK group CEO Andrew Witty had said in an interview to ET last month.

Merck rose 5.95% to Rs 624.95 while Novartis rose 6.2% to Rs 448.95, even as the Sensex shed 0.27% to close at 20,659.52 points. The company is committed to investing organically in India instead of going for big-ticket acquisitions, GSK group CEO Andrew Witty had said in an interview to ET last month.

"Acquisitions bring in tremendous complexity, disrupt existing business and can be enough of a distraction to poison existing relationships," Witty had said.

"M&A is not all that bad, but you have to be careful and analyse carefully what you are buying." During his visit to India last month, Witty announced an investment of Rs 843 crore for setting up a manufacturing plant in Bangalore.

David Redfern, chief strategy officer at GSK, sought to explain the move that took many investors by surprise on Monday. "India, strategically, is an important market for us. We are strongly motivated by the organic business of the company and hence this decision," he said.

The company continues to maintain that it has no plans to delist its India business, and operationally the open offer will not have any impact on the unit. "By way of the two open offers for investing $2 billion in India within one year, GSK has only reiterated its commitment, which is very significant," said Sunil Sanghai, managing director and head of banking at the Hongkong and Shanghai Banking Corp.

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