Shares of GlaxoSmithKline Consumer Healthcare rallied 20% to a record high after GlaxoSmithkline Plc, along with other parent companies, announced its decision to buy an additional 31.8% stake in the Indian unit.
The UK-based parent company, along with Horlicks and Singapore-based GlaxoSmithKline Pte, plans to raise its stake in the Indian subsidiary to 75% from the current 43.2% through an open offer of R3,900 per share, it said in a press release.
Following the announcement, the GSK stock rallied nearly R609 to a record high of R3,651.8 and touched the upper circuit limit. The offer price represented about 28% premium to the stock's Friday's closing price of R3043.2.
The stake increase in the Indian arm is deemed as a part of the company's strategy to invest in the world's fastest growing markets where the company is well established and its leading product, Horlicks, is considered a household brand. The transaction offers a liquidity opportunity at an attractive premium for the existing shareholders, said David Redfern, chief strategy officer, GSK.
The offer period is expected to begin in January 2013 with the likely value of the transaction being R5,222 crore. Analysts consider the open offer price to be a decent premium offered by the management to gain controlling stake.
However, they believe that the secondary market price may rally fast to surpass the offered price if investors expect a revision for the management to gain the majority stake. As per Bloomberg data, the 12-month target price on the stock by a group of 28 analysts stood at R3,380 as on Monday.
The company is known to own majority stake in its subsidiaries globally, and their offer follows this strategy even for the growing Indian market, said an analyst. According to Sebi norms, a company is required to maintain a minimum public shareholding of 25% to remain publicly listed.
According to Anand Rathi, a leading full service securities firm, the open offer indicates higher commitment from the promoters towards the Indian business segment and may lead to greater sharing of technology and resources. These synergies, in turn, are bound to drive earnings for GSK Consumer over the next 2-3 years, it said.
The brokerage also believes that higher promoter holding may lead to higher dividend payout of about 80% from the current 35%.