Novartis hikes open offer to Rs 450

Analysts feel even this may not induce many shareholders to sell.

Switzerland-based Novartis AG, the parent company of Novartis India, has formally revised the open-offer price for its shares to Rs 450 from Rs 351 to buy back an additional stake of up to 39 per cent, to take its shareholding in the Indian subsidiary to 90 per cent.

Following the announcement, the share price of Novartis India surged 20 per cent to hit the upper circuit at Rs 467.50 in morning trade on the Bombay Stock Exchange (BSE). It closed at Rs 444.80, 14.17 per cent higher than yesterday’s closing price of Rs 389.60.

However, analysts say even with the revised price, Novartis India is unlikely to get a good response from shareholders. “Novartis India’s share prices are (already) ruling at a price close to Rs 450 and, in this scenario, investors are unlikely to surrender their shares as the transaction attracts capital gains tax,” said Ranjit Kapadia, vice-president for institution-research at HDFC Securities.

With the revised price, the Basel-based multinational drug major will have to pay around Rs 560 crore to successfully purchase the extra 39 per cent shares; it was earlier planning to spend about Rs 440 crore. The offer, announced last month, was at a premium of 35 per cent over Novartis India’s average share price during March.

The revised offer represents a premium of 63 per cent to the closing share price of Rs 275.6 on March 24, the last trading day before announcement of the offer, said a statement from Novartis AG.

“This proposal represents Novartis’ only and final price revision to this offer, as May 28 is the last day on which the price can be revised,” said the statement.

DSP Merrill Lynch represents Novartis AG for the offer, which started on May 20 and is scheduled to close on June 8, 2009. Currently Novartis AG holds 50.93 per cent stake in the Rs 560 crore Indian subsidiary. The company has been engaged in prolonged legal battles with the Indian government and the patent office on the patent validity of its cancer drug, Glivec.