GSK lines up Rs 6400cr open offer - Times of India

The author has posted comments on this articleTNN | Dec 17, 2013, 04.51AM IST

MUMBAI: Betting big on rising demand in emerging markets as sales in developed economies slow down, GlaxoSmithKline Plc, on Monday, announced a $1-billion open offer to increase its stake in GSK India - its publicly listed pharma entity in the country - from 50.7% to up to 75%. The potential total value of the transaction at the offer price is approximately Rs 6,400 crore.

With this transaction, it would be spending close to $2 billion spread across its businesses in India, including its exposure in the consumer healthcare segment. Coming close on the heels of its plans to invest Rs 864 crore at a fresh manufacturing facility and its increased stake in the consumer business earlier this year, the open offer is a further demonstration of its "long-term commitment" to the country. In February, GSK had increased its stake in it s listed consumer healthcare subsidiary, GlaxoSmithKline Consumer Healthcare, to 72.5% from 43.2% for $901 million.

Reacting to the news, the company's scrip rallied nearly 19% to close at Rs 2,927, after hitting a 52-week high of Rs 2,952 on the BSE. The offer at Rs 3,100 per share represents a premium of approximately 26% to the company's scrip's closing share price on December 13. Terming India as an "important strategic market", and one of the few where its unit is listed, David Redfern, chief strategy officer at GSK, said: "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

."

The offer to acquire up to 20.6 million shares represents 24.3% of the total outstanding shares of the Indian company. The closing price represents an appreciation of 19% over the last 12 months. Securities regulations in India require a minimum public shareholding of 25% for a company to maintain a public listing in the country. GSK intends to keep the company publicly listed, it said in a BSE filing

.

GSK, which has built a strong heritage with a presence of over 90 years in the country, has four products in the top 50 brands here, including Augmentin, Calpol, Zinetac and Ceftum. When asked whether the company would sweeten the deal in case it meets with a tepid response, Redfern told TOI: "We have no plans to up the offer as we believe that it is at an extremely fair price. We did not do that where GSK Consumer was concer ned, we don't intend to do it now."

Analysts believe that the response to the offer may be subdued as the share had moved up substantially - by nearly 19% - over a day, and would gain over the next few days, closing the gap between the offer price and market price.

Sarabjit Kour Nangra of Angel Broking said the offer is a positive. "Investors with a short-term horizon may tender their shares. While those, who have a long-term view of three-four years should hold on to the stock as it is expected to earn decent returns going forward." Subject to regulatory clearance, the offer is expected to begin in February 2014. The transaction will be funded through GSK's existing cash resources, will be earnings neutral for the first year and accretive thereafter and will not impact expectations for the group's long-term share buyback programme, a statement said.

Sales have been sluggish for GSK Pharma in the past few quarters due to the implementation of the pharma pol icy. Patent challenges have also been a concern for multinational pharma companies operating in India. "Though this year has been tough and not been a particularly strong year (for GSK), we remain positive, having taken a long-term view," Redfern said.

Sunil Sanghai, head global banking at HSBC India, which managed the offer, said: "It is a significant re-endorsement of their belief in the India growth story."

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