GSK to spend $940 mn to lift stake in India arm

Open offer to increase holding to 75%, fails to enthuse institutional investors

London-based GlaxoSmithKline on Monday announced a $940-million (Rs 5,220-crore) open offer to raise its stake in its consumer products company in India — GlaxoSmithKline Consumer Healthcare — from 43.2 per cent to 75 per cent. GSK said it would pay Rs 3,900 apiece to the shareholders tendering their shares in the open offer, to begin in January next year.

Reacting to the announcement, the GSK Consumer Healthcare scrip shot up by Rs 608 to Rs 3,651.80, hitting the 20 per cent upper circuit, as soon as the stock market opened on Monday. GSK Consumer Products, known in India for its Horlicks and Boost brands, will continue to receive new products and technology from its parent, irrespective of the response to the open offer.

Speaking to Business Standard, GSK Chief Strategy Officer David Redfern said there was no plan to delist the company from the Indian stock exchanges after the parent raised its stake to 75 per cent and that the company was not going to revise the offer price, which was at 28 per cent premium on Friday’s closing price.

A BOOST FROM THE PARENT

Fine prints of the plan

• Offer price to be Rs 3,900 a share
• The offer opens in Jan
• Institutional investors say the offer price is not attractive
• GSK rules out revision in offer price; no plans to delist the Indian firm

What’s a voluntary open offer?

• According to Sebi takeover code, an acquirer holding 25% or more voting rights in a target company can make a voluntary offer for at least 10% of the total shares of the target company
• The total shareholding of the acquirer after the open offer should not exceed the maximum permissible non-public shareholding threshold of 75%
• The acquirer should not have acquired shares of the target company in the preceding 52 weeks without attracting the open-offer obligation

But institutional investors, who hold 58 per cent in the company along with foreign investors, said the offer price was not attractive and they would rather hold their stake. With the stock going up by 20 per cent on Monday, analysts say the offer will not get good response.

“The Glaxo board came down to Delhi a month ago and decided this was the right time to invest more in India,” Redfern said. “We have been fair to the shareholders of the Indian company and we have to be fair to the shareholders of the parent company, too. Now, it’s up to the shareholders to decide whether they would like to participate in the open offer or not,” he added.

Expecting a similar offer, the stock price of GSK’s other listed arm in India, GSK Pharma, also went up on BSE, by 2.25 per cent, to close at Rs 2,044 a share. Redfern said, as of now, the parent was comfortable with 50 per cent stake in the pharma company and had no plans to raise it.

The transaction for the consumer products firm would be funded through GSK’s existing cash resources. It would be earnings-neutral for the first year and accretive thereafter, and will not impact GSK’s long-term share buyback plans.