Glaxo Increases Stake in Indian Subsidiary - Analyst Blog

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GlaxoSmithKline ( GSK ) announced its decision to increase its holding in its pharmaceuticals subsidiary in India from 50.7% to up to 75%. Glaxo plans to increase its stake through a voluntary open offer. The offer, worth approximately £629 million, represents a premium of about 26% over the market price of the Indian subsidiary (closing price as on Dec 13, 2013 in the local stock exchange). Glaxo plans to initiate the offer in Feb 2013, subject to the fulfillment of certain regulatory conditions.  

The deal will not have any impact on earnings in the first year, but will be accretive thereafter. Glaxo plans to fund the deal with its existing cash resources and remains on-track to buy back shares (£1 billion to £2 billion) in 2013.

The Indian pharmaceuticals subsidiary commercializes pharmaceuticals and vaccines targeting several therapeutic areas including respiratory, cardiovascular, oncology, anti-infectives and dermatology. The subsidiary generated revenues of approximately £313 million in 2012.  The deal is in line with the company's plans to expand its pharmaceuticals segment in emerging markets and looks good to us.

We remind investors that in February this year, Glaxo announced that it had increased its stake in its consumer healthcare subsidiary in India from 43.2% to up to 72.5%. Glaxo increased its holding through an open offer which was initially announced in Nov 2012. The offer was worth approximately £568 million.

Glaxo carries a Zacks Rank #3 (Hold). We are concerned about the loss of revenues in the third quarter due to investigation in China regarding fraudulent behavior and ethical misconduct. We are also disappointed with pipeline setbacks for two late stage candidates (drisapersen and darapladib). Meanwhile, Glaxo continues to face challenges in the form of EU pricing pressure and generic competition. We expect recent approvals, restructuring and cost-cutting efforts to offset some of the negatives.

Some better-ranked stocks include Vanda Pharmaceuticals, Inc. ( VNDA ), Actelion Ltd. ( ALIOF ) and Forest Laboratories Inc. ( FRX ). All these companies hold a Zacks Rank #1 (Strong Buy).



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ALIOF , FRX , GSK , VNDA

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