GlaxoSmithKline has unveiled plans to increase its holdings in the drug major's consumer healthcare divisions in India and Nigeria.
First up, the firm will raise its stake in India's GlaxoSmithKline Consumer Healthcare from 43.2% to up to 75% and pay 3,900 rupees per share through an open offer. That represents an investment of 52.20 billion rupees or around £591 million and a premium of 28% to the unit's share price on November 23.
GSK’s consumer healthcare business in India generated over 28 billion rupees in 2011 (about £380 million) with a compound annual growth rate over the past five years of 19%. The company employs 3,200 people.
GSK chief strategy officer David Redfern said the unit "is a well established business in India" and its leading product, the malted milk hot drink Horlicks, "is an iconic household brand". He added that the transaction "represents a further step in GSK's strategy to invest in the world's fastest growing markets".
The company is taking a similar step in Africa where it plans to increase its ownership in GlaxoSmithKline Consumer Nigeria from 46.4% to 80%. That proposal also represents a premium of 28% to the latter's closing share price on Friday and the transaction is valued at 15.40 billion naira (£62 million).
GSK Nigeria makes and sells brands including Panadol, Sensodyne and Lucozade and 70% of its revenue (in 2011 it reached 21.50 billion naira) is from consumer healthcare and 30% from pharmaceuticals and vaccines.
Commenting on the moves, Ana Nicholls, healthcare analyst at the Economist Intelligence Unit, noted that sales of "so-called functional foods are particularly buoyant in India, with families whose memories of malnutrition are recent keen to increase their intake of vitamins and other nutrients". She added that "plans to increase sales in the north and east will be aided by roll-out of India's retail chains, particularly after the recent liberalisation of foreign investment rules".
No increase in pharma unit stakes
Ms Nicholls went on to say that "interestingly, GSK has so far shied away from increasing its stake in its pharma subsidiary in India, which could be affected by recent efforts to clamp down on drug prices". Last week, the government passed a new National Pharmaceutical Pricing Policy, which links drug prices on India's Essential Medicines list to the average price of brands with an Indian market share of over 1%.
The analyst noted that the Indian Pharmaceutical Alliance and Organisation of the Pharmaceutical Producers of India have argued that the new policy will hurt pharmaceutical companies' profits in the country. However, "sales of non-prescription drugs will benefit from rising consumer spending on health".