GSK Pharmas Rs 6,400-crore open offer begins today

Written by fe Bureau | Mumbai | Updated: Feb 7 2014, 14:35pm hrs
GSK pharmaGSK Pharma with parent GSK Plc is aiming to raise its stake in Indian subsidiary to 75% during the buyback programme. Reuters
The Rs 6,400-crore voluntary open offer by GlaxoSmithKline Pharmaceuticals (GSK Pharma) kickstarts on Friday, with parent GSK Plc aiming to raise its stake in the Indian subsidiary to 75% during the 11-day buyback programme.

Citing India's long-term demand story and increasing exposure to a strategically important market, the UK-based pharmaceuticals company has offered to buy 2.06-crore shares (24.33%) at R3,100 apiece a premium 4.5% from Thursday's closing price of R2,969.45. The premium was as high as 26% when the deal was first announced in the second week of December.

The decision to increase the stake in the Indian subsidiary follows the company's 2012 annual report, which points out that promoter holding in India and China is the lowest when compared with GSK's holding in other subsidiaries around the world.

As per the annual report, GlaxoSmithKline has 105 subsidiaries, of which the company enjoys full ownership in 93 companies and owns more than 75% in eight entities. In India and China, however, promoter entities hold 51% and 55%, respectively, as in quarter ended December 2013.

Motilal Oswal analyst Alok Dalal said that India has always been important for Glaxo and it seems to be focusing on long-term prospects. Overall, all foreign companies are looking at emerging markets positively.

Many domestic and foreign analysts that FE spoke to were of the opinion that the open offer was attractive for shareholders and the company may see a high level of success. At about 38-39-times one-year forward price-to- earnings (P/E), the stock has factored in all positive announcements and may see some correction after the open offer concludes.

Analysts also estimate the acceptance ratio to be around 80% and say the number will depend on institutional participation. Some of the large insurance as well as asset management companies are facing redemption pressure and may tender shares in the offer either partly or completely they said.

Since 13.5% of the shareholders are individuals, based on previous experience, individual participation in the open offer will be between 50% and 60%. However, the company has almost 34% institutional holding and it is difficult to predict whether institutions will participate. Hence, we have designed different scenarios and come up with different acceptance ratios along with expectation returns, said a report by Anand Rathi Securities.

Aberdeen is the largest minority shareholder in GSK Pharma with 14.27% stake in the quarter ended December. Among other institutional shareholders, LIC holds 5.69%, while GIC has 1.18%.