Glaxo announces open offer to hike stake in Indian arm

GlaxoSmithKline Plc, the UK-based pharmaceutical major, today has announced a voluntary open offer to increase stake in its Indian subsidiary GlaxoSmithKline Pharmaceuticals, sending the shares of the Indian arm up by 20 per cent in morning trade.

The parent company proposes to acquire 20,609,774 shares, representing 24.33 per cent of the total outstanding shares of the Indian company; and the offer is compliant with Securities & Exchange Board of India (SEBI) rules, according to a company filing with the Bombay Stock Exchange.

''The voluntary open offer is for acquisition of 20,609,774 shares representing 24.33 per cent of the total voting share capital from the public shareholders of GlaxoSmithKline Pharmaceuticals by GlaxoSmithKline Pte along with GlaxoSmithKline Plc in its capacity as a person acting in concert with the acquirer,'' it added.

GlaxoSmithKline Plc plans to increase its stake from 50.7 per cent to up to 75 per cent at an offer price of Rs3,100 per share, a premium of 25.58 per cent from Friday's closing price of Rs2,468.40.

The parent company has earmarked around $1 billion to raise its stake, reportedly betting on rising demand in emerging markets as sales in developed economies slow due to a wave of patent expirations.

With the latest India deal, GSK is set to spend close to $2 billion in roughly a year to increase its holdings in two listed Indian companies, its biggest incremental investment in any country in that period.

Emerging markets such as India and Brazil are an important plank of GSK chief executive officer Andrew Witty's growth strategy, as he grapples with slower uptake of the company's products in the developed world.

In February, GSK hiked its stake in its publicly listed Indian consumer healthcare subsidiary, GlaxoSmithKline Consumer Healthcare Ltd, to 72.5 per cent from 43.2 per cent for $901 million.

"This really reflects the opportunity we see here in India, particularly the volume opportunity," said David Redfern, chief strategy officer of GSK, referring to the decision to raise its stake in the Indian unit.

"We have a broad range of medicines and vaccines and we really think over the next few years as India develops we can drive a substantial increase in volume to make more medicines and vaccines available to the Indian population."

As per Indian regulations, promoters of listed companies can hold a maximum 75 per cent stake. If the promoter's shareholding rises beyond 75 percent, the company has to be de-listed from the bourse.

The deal will be funded by GSK's existing cash and will be earnings neutral for the first year and accretive thereafter, the company said. The tender offer will not impact expectations for the parent's long-term share buyback programme, the company said.

GSK's Indian pharmaceuticals unit makes drugs for applications including respiratory, cardiovascular, oncology, anti-infectives and dermatologic diseases.

The offer is likely to begin in February and the deal is being managed by HSB.