MUMBAI GlaxoSmithKline Plc(GSK.L) plans to spend more than $1 billion to raise stakes in its Indian and Nigerian consumer healthcare arms, as Britain's biggest drugmaker deepens its emerging markets and non-prescription consumer health footprint.
The deals are the latest of several by GSK, which is reducing its reliance on traditional prescription drug markets in Western economies where sales are slowing.
GSK said on Monday it will buy up to an additional 31.8 percent stake in India's GlaxoSmithKline Consumer Healthcare Ltd (GLSM.NS) for about $940 million by paying 3,900 rupees per share in an open offer. The price was a premium of 28 percent to the stock's Friday close.
On similar lines, GSK also said it plans to raise the stake in its Nigerian consumer products unit, GlaxoSmithKline Consumer Nigeria Plc (GLAXOSM.LG), to 80 percent from 46.4 percent now in a $98 million deal.
After the offer, GSK's stake in the Indian consumer products arm, which makes health drinks and over-the-counter drugs and balms, will rise to 75 percent from 43.2 percent.
"The offer shows their commitment to India business," said Daljeet Kohli, head of research, at brokerage IndiaNivesh in Mumbai.
"Also, having 75 percent control is as good as having full control. You can take any decision or pass any resolution you want," he added.
Under Indian regulations, controlling shareholders can own up to a maximum 75 percent in a listed company and are not obliged to make an offer for the remaining 25 percent stake, which has to be in public hands for the company to remain listed. GSK said it does not plan to de-list the Indian unit.
GSK Consumer Healthcare shares jumped to a record high in Mumbai on the GSK move. The shares were locked at 3,659.20 rupees, up 20 percent, their maximum daily trading limit, while the BSE Sensex closed up 0.16 percent on Monday.
Shares in GSK Consumer Nigeria rose 4.99 percent, almost the maximum allowed 5 percent, valuing it just under $230 million.
GSK said the Indian and Nigerian transactions will be funded through existing cash resources and won't impact expectations for the group's long-term share buy-back programme.
The Indian deal, for which the offer period will begin in January, will be earnings neutral for the first year and boost earnings thereafter, it said.
The Indian arm sells popular brands such as health drink Horlicks, malt-based drink Boost and a multi-vitamin drink VitaHealth, which is marketed to women. It also markets OTC drugs such as paracetamol tablet Crocin, painkiller gel Iodex and acidity reliever Eno.
Tough market conditions in Europe have hampered GSK's hopes for a return to sales growth this year, although the company's growing business in emerging markets and its large consumer healthcare operation are both doing well.
In India, for example, sales of the consumer unit's flagship Horlicks brand stood at 270 million pounds in the year that ended December 2011, contributing nearly three-quarters of its total revenues.
Horlicks is one of India's most popular health drinks. It comes in a powder form and is usually mixed with milk.
"A lot of the current business of Horlicks is in the south and the east of India. So there is still a great opportunity to increase the penetration to the north and the west," David Redfern, chief strategy officer at GSK, told Reuters in an interview.
He added that the company intended to introduce new variants of the brand in the country.
(Additional reporting and writing by Aradhana Aravindan in MUMBAI and Ben Hirschler in LONDON; Editing by Muralikumar Anantharaman)