GlaxoSmithKline Pharmaceuticals's shares touched a 52-week high of Rs2,952 apiece on the NSE after its UK parent GlaxoSmithKline said it will spend Rs6,389 crore (£629 million) to raise stake in its Indian subsidiary to 75% from 50.7%.
Through a voluntary open offer, GSK will buy up to 20,609,774 shares (or a 24.3% stake) of GSK Pharma at Rs3,100 per share, signifying a 26% premium to Friday's closing price.
After hitting the upper circuit of 20%, GSK Pharma shares closed at Rs2,925, up nearly 19% from Friday's close, and up 19% over the last 12 months. Around 9 pm (India time) on Monday, parent GSK's shares were trading at £15.93, up 1.43%, on the London Stock Exchange.
David Redfern (pictured), chief strategy officer, GSK, said the deal will increase the parent's exposure to India, "a strategically important market" where GSK has a proud heritage. "The open offer is a further demonstration of our long-term commitment to the country, having increased our holding in our consumer business (GlaxoSmithKline Consumer Healthcare) earlier this year and more recently committed to a significant manufacturing investment."
GSK will fund the deal through its existing cash resources and will be earnings-neutral for the first year and accretive thereafter. "It will also not impact expectations for the group's long-term share buy-back programme," the parent said in a statement.
Analysts said Monday's news is positive for the parent company as it will get more control over its Indian operations and enhance its role in India's drug market, which is estimated at $12 billion by PwC.
Rahul Sharma, senior analyst, Karvy Stock Broking, said, "With this deal, GSK will get better yield on cash as compared to the money they are deploying in other markets."
GSK has been transferring key patented medicines through the listed Indian entity on a regular basis. Hence, it becomes important for the parent to have more control on its Indian operations, analysts said.
"The management sees great prospects for the (Indian) company in the next 5-10 years. So it is taking steps to communicate its commitment to the Indian market," said a pharma analyst from a foreign brokerage.
GSK Pharma manufactures and sells pharmaceuticals and vaccines across multiple therapeutic areas, including respiratory, cardiovascular, oncology, anti-infectives and dermatology. Among its top-selling products include the antibiotic Augmentin, Calpol, Zinetac and Ceftum.
Sarabjit Kaur Nangra, vice-president, research (pharma), Angel Broking, said, "GSK has been simultaneously introducing key medicines in global markets and in India. Besides, it's a rare drug-maker that has earmarked a huge capex of Rs864 crore towards a new manufacturing facility in India."
However, some analysts feel GSK Pharma stock will likely become illiquid once the parent's stake rises to 75%. But Nangra disagrees. Retail interest, he said, may well continue as investors keep looking for companies with such market triggers.
This is the second open offer by GSK in India. Earlier this year, it spent around $901 million to increased stake from 43.2% to 72.5% in the consumer healthcare unit.
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