GlaxoSmithKline Plc (GSK), the UK’s largest drug maker, offered to spend up to $1 billion to raise its stake in Indian subsidiary GlaxoSmith-Kline Pharmaceuticals through a voluntary open offer, in line with similar moves by other overseas companies and marking its confidence in the local business despite new price controls having sharply eroded sales in the country.
The move will result in GSK investing a total $2 billion or so in its two Indian subsidiaries, indicating the parent’s growing confidence in increasing exposure in the country of 1.2 billion people where the pharmaceuticals market is estimated at about Rs.75,000 crore. GSK had offered to raise its stake in GlaxoSmith-Kline Consumer Healthcare, the maker of Horlicks, through a voluntary offer earlier this year, sticking to the group’s philosophy of growing organically and investing in local businesses.
GSK said that it was looking to buy a 24% stake in the pharmaceuticals subsidiary for about $1billion, or Rs.6,400 crore, at Rs.3,300 a share, a premium of 26% over Friday’s closing price of Rs.2,468.40. This will take its holding to 75% from 50.7%. The stock surged on the announcement, ending 18.6% up at Rs.2,927.40. There was a knock-on effect on Indian units of overseas drug makers.
David Redfern, chief strategy officer at GSK, sought to explain the move that took many investors by surprise on Monday. “India, strategically, is an important market for us. We are strongly motivated by the organic business of the company and hence this decision,” he said.
The company continues to maintain that it has no plans to delist its India business, and operationally the open offer will not have any impact on the unit.
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