British pharmaceutical giant Glaxo SmithKline (GSK) on Monday announced an open offer to buy 24.33% more in its in Indian arm GlaxoSmithKline Pharmaceuticals for Rs 6,400 crore, triggering a 19% surge in share prices of the local unit to Rs 2,927.
GSK is looking to hike its stake in the Indian unit to up to 75% from the current 50.7%, following the footsteps of Anglo-Dutch consumer goods giant Unilever in increasing its stake in its Indian arm Hindustan Unilever (HUL) earlier this year.
The company will buy 20.6 million shares at Rs 3,100 apiece, a premium of 26% to its closing price on Friday. The offer period is expected to begin in February 2014 subject to regulatory clearances, GSK said in a statement.
While Unilever had announced an open offer in July to raise its stake in HUL to 67% by investing Rs 19,220 crore, telecom major Vodafone sought to increase its stake in the Indian subsidiary to 100% by buying shares worth Rs 10,141 crore from other partners in October.
UK-based GSK sells various products in India, and owns brands such as Horlicks, Boost, Maltova, Crocin, Eno and Iodex.
GSK will maintain its holding at 75% and keep 25% of stakes as floating shares for the public as laid down in Indian regulations. It said it has no intention to take the India arm private.
With this deal, GSK is set to spend close to $2 billion (about Rs 12,000 crore) in roughly a year to raise its holdings in two Indian arms — which would be its biggest investment in any country in the period for expansion. The company had in February raised its stakes in another publicly listed subsidiary, GSK Consumer Healthcare, from 43.16% to 72.46%, investing Rs 5,222 crore.
The company's moves reflect its confidence in the Indian market despite growing cynicism over decelerating economic growth. "We are not affected by short-term challenges. We think very positively of the prospects, especially on the volume side," said David Redfern, chief strategy officer, GSK.
"The buy back of the shares is at attractive prices," said Sarabjit Kour Nangra, vice-president research, Angel Broking.
Buoyed by the sentiment, shares of Indian subsidiaries of other multinationals rose on expectations of similar moves: Sanofi India (up 1.9%), Merck (up 5.9%) and Abbott India (up 2.6%).