GlaxoSmithKline said it plans to spend more than $1 billion to expand its stake in its Indian and Nigerian consumer healthcare businesses. The deals will strengthen the Big Pharma’s presence in emerging markets’ non-prescription products, where it sees its sales growing at a time that European sales have slowed.
GSK offered to increase its stake in its publicly-listed subsidiary, GlaxoSmithKline Consumer Healthcare in India, to 75 percent from its current 43.2 percent ownership. The U.K. pharma has offered to pay $70.16 a share (INR 3,900), a 28 percent premium to its closing price on the National Stock Exchange of India on November 23, and a 22 percent premium to its 12-month high on the BSE. The deal, if consummated, is valued at $940 billion (INR 52.2 billion).
“GSK Consumer Healthcare is a well established business in India and its leading product, Horlicks, is an iconic household brand,” says David Redfern, chief strategy officer for GSK. “This transaction represents a further step in GSK’s strategy to invest in the world’s fastest growing markets.”
Under Indian securities regulations, an Indian company must maintain at least 25 percent public ownership to remain publicly listed. GSK’s Indian consumer products division generated about $500 million in revenue in 2011 and has had a compounded annual growth rate of 19 percent over the past five years. GSK Consumer Healthcare markets the health drink Horlicks and other nutritional drinks and over the counter medications.
India’s expanding urban middle class has a strong appetite for nutraceuticals, which include functional foods and beverages, and nutritional supplements, as a way to ward off the onset of chronic diseases. According to an Ernst & Young report, India’s nutraceuticals market is growing at a rate of 18 percent a year and has a potential customer base of 148 million people.
GSK also reached an agreement in principal to increase its ownership in its Nigerian consumer health venture, GlaxoSmithKline Consumer Nigeria to 80 percent from its current 46.4 percent equity stake. As in India, the Nigerian Stock Exchange requires a minimum public shareholding of 20 percent to remain listed.
The Nigerian deal is valued at $98 million and it too represents a premium of 28 percent to GSK Nigeria’s closing share price on November 23. About 70 percent of GSK Nigeria’s revenue derives from consumer healthcare brands with the remainder from pharmaceuticals and vaccines.
Both transactions are subject to regulatory clearance and will be funded through GSK’s existing cash reserves. The Indian offer is expected to commence in January 2013. Earlier this year GSK sold its European over-the-counter brands to Omega Pharma in March and sold its Australian and select international brands to Aspen Pharmacare in April and August. Those deals netted the drugmaker a little more than $1 billion.
November 30, 2012