) recently announced that it has reached an agreement with
GlaxoSmithKline Consumer Nigeria plc regarding its proposal to
increase its holding in the latter from 46.4% to 80%. Glaxo plans
to increase its stake by acquiring shares on a pro rata basis.
The offer, worth approximately £62 million, represents a premium
of about 28% over the market price of the Nigerian subsidiary
(closing price as on November 23, 2012 in the local stock
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Glaxo Nigeria generated revenues of approximately NGN 21.5
billion in 2011 and demonstrated compound annual growth rate
(CAGR) of 21% p.a. in the last 4 years.
On closure, subject to certain regulatory conditions, the deal
will be immediately modestly accretive. Glaxo plans to fund the
deal with its existing cash resources and remains on-track to buy
back shares worth between £2 billion and £2.5 billion in 2012.
Meanwhile, Glaxo also announced its decision to increase its
holding in its consumer healthcare subsidiary in India from 43.2%
to up to 75%. The offer, worth approximately £591 million,
represents a premium of about 28% over the market price of the
Indian subsidiary (closing price as on November 23, 2012 in the
local stock exchange).
We currently have a Neutral recommendation on Glaxo. The stock
carries a Zacks #3 Rank (Hold rating) in the short run.
Several products in Glaxo's portfolio are facing declining sales
due to intense generic competition. We expect the company's top
line and gross margins to remain under pressure in the coming
quarters. EU pricing pressure will also continue to affect sales.
Glaxo is aiming to maximize the potential return from its
pipeline. The company is looking towards deals and acquisitions
to drive growth. Further, the company is focusing on increasing
the rights on its partnered products and promising pipeline
candidates, so that it stands to benefit more from their success.
Glaxo's acquisition of Cellzome and Human Genome Sciences,
increasing investment in
) and amended agreement between ViiV Healthcare and Shionogi
indicate its efforts to expand the pipeline.
Apart from this, Glaxo continues to progress on its cost-cutting
initiative, which should help reduce the impact of increasing
generic competition over the next few years and boost