Shanghai Fosun Pharmaceutical Group Co. scaled back its proposed purchase of control in Indian drugmaker Gland Pharma Ltd. to a level that would allow it to avoid a government review of the biggest Chinese acquisition in India. Fosun Pharma, backed by Chinese billionaire Guo Guangchang, will now buy a 74 percent stake for $1.1 billion, according to a statement Sunday. It had originally sought to buy an 86 percent stake in the closely-held Indian drugmaker from an investor group including KKR & Co. However, a stake that size must be signed off by the Cabinet Committee on Economic Affairs, which was poised to reject the move, Bloomberg reported Aug. 1, citing people familiar. The reduced stake will avoid a government review, Fosun said, and the deal is set to complete by Oct. 3 as all the main conditions have been met. The deal gives the Chinese firm access to Gland’s stable of generic injectable medicines and control of facilities to export to the U.S. and other developed markets.
The original acquisition offer valued Gland, including debt, at about $1.35 billion, 16 times its earnings for the financial year 2016, Fosun Pharma said in a statement August last year to the Hong Kong stock exchange. Gland had revenue of 1.2 billion yuan ($183 million) and net profit of 272 million yuan in 2015, according to the statement. Fosun Pharma shares jumped as much as 4.3 percent in Shanghai Monday. Shares of Fosun International Ltd., Fosun Pharma’s largest shareholder, jumped as much as 9.7 percent to HK$16.46 in Hong Kong, the highest since August 2015.
The deal faced Indian regulator scrutiny as tensions between Indian and China have escalated amid a renewed spat over territory in a remote area of the Himalayas, one of the most serious flareups since a border war in 1962. China and India ended the months-long military face-off in late August before leaders of both countries attended a summit of BRICS nations in China. Last year, new Indian rules allow stake purchases of up to 74 percent in existing pharmaceutical companies to go through an automatic route that doesn’t require government approval.
Founded in 1978, Hyderabad-based Gland specializes injectable drugs such as antibiotics, oncology and cardiology treatments. Its manufacturing facilities have been accepted by several regulatory agencies including the United States Food and Drug Administration, giving it access to the world’s biggest pharmaceutical market.
Chinese drugmakers have grown more ambitious in seeking deals that give them access to the U.S., the world’s biggest pharmaceutical market. Valeant Pharmaceuticals International Inc. this year sold its Dendreon Pharmaceuticals unit to Chinese conglomerate Sanpower Group Co. for $820 million. Chinese contraceptives maker Humanwell Healthcare Group Co. is part of a consortium that agreed in June to buy U.S.-based RiteDose for about $605 million.
Fosun Pharma has been increasing ambitious in buying assets overseas in a push to both acquire innovative pipelines and seek revenue growth as China’s pharmaceutical market slows under heavy government pressure to cut costs. China’s banking regulator has stepped up its scrutiny on Fosun and China’s other prolific deal-making conglomerates, people familiar with the matter said in June. Last month, China also enacted rules to restrict overseas investments.