Mumbai: British drug giant GlaxoSmithKline (GSK) will invest around Rs 5,215 crore ($941 million) to increase stake in its Indian consumer healthcare subsidiary, GlaxoSmithKline Consumer Healthcare (GSKCH), to 75% through a voluntary open offer.
This is among the largest MNC share buybacks in the recent past, and also signals GSK's bullish sentiments in a key growth market. Swiss engineering giant ABB had showed up with a $965-million buyback offer two years ago in another instance of an MNC parent boosting its economic interest in the India unit.
GSK, which currently holds 43.2% in GlaxoSmithKline Consumer Healthcare (GSKCH), will pick up 31.8% of the total outstanding shares of the publicly listed Indian company at a price of Rs 3,900 per share. This represents a premium of approximately 28% to the NSE closing share price on Friday and 22% to the 12-month high on the Bombay Stock Exchange.
The announcement sent the GSKCH stock to a record high of Rs 3,652 on the BSE on Monday, up 20% or Rs 609 over the previous close of Rs 3,043.
"GSK Consumer Healthcare is a well established business in India and its leading product, Horlicks, is an iconic household brand. This transaction represents a further step in GSK's strategy to invest in the world's fastest growing markets and, we believe, offers a liquidity opportunity at an attractive premium for existing shareholders," David Redfern, chief strategy officer, GSK, said in a media release.
GSK's consumer healthcare business in India generated over Rs 2,800 crore (approximately £380 million at 2011 average exchange rates) turnover with 19% compound annual growth rate over the past five years. GSK had committed more than $2.5 billion earlier this year to buy back shares in its emerging market units.
"It reflects the confidence that the parent company has in emerging markets as well as in GSKCH, which is growing at a healthy rate. There is no doubt the parent would be looking at further entrenching itself in this market and could even launch more products from its stable going forward," said an analyst from an Indian brokerage.
Besides Horlicks and Boost, which are growing at a healthy pace, the company also manufactures and markets Viva and Maltova apart from other brands in diverse categories, such as Eno, Crocin, Iodex, BreatheRight and Sensodyne. GSKCH has a strong marketing and distribution network in India comprising over 600 distributors and a direct coverage of over 7.5 lakh retail outlets.
Among other multinationals operating in India, GSKCH was the only one where the parent holding was below 51%. Post the offer, GSKCH would change from being an associate company to a subsidiary of GSK.
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