GlaxoSmithKline Pharmaceuticals for bn-dollar buyback in GSK India

GlaxoSmithKline Plc (GSK) is looking at hiking stake in GlaxoSmithKline Pharmaceuticals to up to 75 percent from 50.67 percent, in line with FMCG giant Unilever increasing stake in its Indian arm HUL earlier this year.

PTI| Updated: Dec 17, 2013, 07:51 AM IST

Mumbai: British pharma major GSK on Monday announced an open offer to buy 24.33 percent stake in its Indian arm GlaxoSmithKline Pharmaceuticals for a total consideration of Rs 6,389.02 crore, triggering a nearly 20 percent surge in share prices of the local unit on BSE.

GlaxoSmithKline Plc (GSK) is looking at hiking stake in GlaxoSmithKline Pharmaceuticals to up to 75 percent from 50.67 percent, in line with FMCG giant Unilever increasing stake in its Indian arm HUL earlier this year.

GSK will acquire 20,609,774 shares of face value Rs 10 each, representing 24.3 percent of the total outstanding shares of the Indian firm, at Rs 3,100 a piece, GlaxoSmithKline Pharmaceuticals said in a filing to the BSE.

This offer is about 26 percent premium over the closing price on Friday.

GSK will maintain its holding at 75 percent as mandated by Sebi regulations of 25 percent public float and it has no intention to take the India arm private.

While GlaxoSmithKline Pharma shares surged 19.59 percent to a 52-week high on BSE at Rs 2,952, on the NSE, it rose 19.99 percent 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 said.

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.

HSBC India has been appointed as the sole adviser for the deal. "The buyback of the shares is at an attractive price, much above the current market price and is a strong indicator from the management's side towards the listed entity. The stock would move on the way up on the buyback," said Angel Broking VP for pharma research, Sarabjit Kour Nangra.

GSK Pharma's product portfolio includes prescription medicines and vaccines across therapeutic areas such as anti-infectives, dermatology, and gynecology.

Its employs over 5,000 across its operations and its turnover stood at over Rs 2,600 crore as of December 2012.

In July, consumer goods giant Unilever had invested Rs 19,180 crore to increase its stake in Hindustan Unilever to 67.28 percent through an open offer. But the offer fell short of the target of 75 percent from the earlier 52.48 percent due to lukewarm response from shareholders to the offer.

On GSK's view on the IPR scenario here, where many biggies like Pfizer lost their patent battle, Redfern said, "We think intellectual property is important. We spent over USD 5 billion worldwide on R&D and level of investment needs to be underpinned but when it comes to this market only a very small proportion of our products here actually have patents.

"We try to be very realistic on pricing even on products like Tykerb for breast cancer which has a patent. We try to price the product as affordable so as to be accessible. So, that really means a very substantial discount to the price on what we sell our patented products in the west in the US and Europe," he said.

When asked whether the investment into the open offer will affect GSK capex plan here, he said: "I don't think the open offer should affect the operational management of the business. We will continue to invest here. We locally manufacture most of the products that we sell here.

"We have a big plant in Nashik and we are planning to build one more, probably in Bangalore. That means we will continue to invest in manufacturing capacity," he said.

In February this year, GSK, through a voluntary open offer, had increased stake in its Indian subsidiary GlaxoSmithKline Consumer Healthcare Ltd (GSKCH) to 72.5 percent from 43.2 percent in a transaction worth Rs 4,800 crore.

During the offer period, which commenced on January 17, 2013 and closed on January 30, 2013, shareholders of GSKCH validly tendered about 1.23 crore shares representing 29.3 percent of the total shares outstanding.

GSKCH markets various products in India, including Horlics, Boost, Maltova, Crocin, Eno and Iodex.