) recently announced its decision to increase its holding in its
consumer healthcare subsidiary in India from 43.2% to up to 75%.
Glaxo plans to increase its stake through a voluntary open offer.
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). Glaxo plans to initiate the offer, in January 2013,
subject to the fulfillment of certain regulatory conditions.
The Indian consumer healthcare subsidiary generated revenues of
approximately £380 million in 2011 and demonstrated compound
annual growth rate (CAGR) of 19% p.a. in the last 5 years. We are
positive on the deal, which is in line with the company's plans
to expand its Consumer Healthcare segment in emerging markets.
The deal will not have any impact on the 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 worth between £2 billion and £2.5 billion in 2012.
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 continue to affect sales as
Glaxo is aiming to maximize the potential return from its
pipeline. The company is looking toward 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 earnings.
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