September 18, 2017 / 3:22 AM / 9 months ago

BREAKINGVIEWS-Fosun beats the odds with revamped Indian deal

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Una Galani

MUMBAI, Sept 18 (Reuters Breakingviews) - Fosun has injected some life into dealmaking between India and China. On Sunday, the drug unit of Guo Guangchang’s Chinese conglomerate said it would buy 74 percent of Gland Pharma for $1.1 billion, instead of buying 86 percent as agreed last year. The revamped purchase shows Beijing is still open to sensible foreign deals. And despite a recent border spat, India can be open to Chinese money.

The fix doesn’t change the overall valuation of Gland, a Hyderabad-based manufacturer of generic drugs. U.S. private equity backer KKR will still get a clean exit, pocketing more than twice what it paid for a 38 percent stake in 2013.

But two other important things have changed. First, last month India and China ended their most serious military confrontation in decades, over a remote border area. And second, Gland’s founders have now agreed to hold onto more of the company for longer, making the deal harder to block for non-political reasons.

Under Prime Minister Narendra Modi, India has pared back caps on foreign investment in all but a few sensitive sectors, such as banking and retail. As part of this, India relaxed rules in June last year, allowing up to 74 percent foreign investment in drug companies without any government approval.

That means there are no formal hurdles for the deal to clear, having already won approval in China and the United States, a key market for Gland. But New Delhi will need to be on side later if Gland’s founders want to exercise a put option and sell the rest for $355 million.

The recut deal is nonetheless a milestone. It is the single biggest-ever Chinese purchase in India; cumulative direct investment from China into India, from 2000 to June 2017, totalled just $1.7 billion. It also shows that while India is wary of Chinese buyers, the current rules leave little choice but to be as open to them as any other acquirer.

Meanwhile, Fosun’s ability to secure the requisite domestic approvals also suggests that while the days of Chinese miners buying into video-gaming may be over, Beijing is still happy to see sensible cross-border deals in the right sectors. A takeover that looked very sickly has sprung back to life.

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- Shanghai Fosun Pharmaceutical agreed to buy a smaller, 74 percent stake in India’s Gland Pharma for $1.1 billion, the Chinese company said on Sept. 17.

- Fosun had agreed in July 2016 to buy up to 86 percent of Gland for $1.3 billion. Hyderabad-based Gland manufactures generic injectable drugs and mostly sells them in the United States. Fosun made a non-binding proposal to acquire Gland in May 2016.

- Under the new deal, Gland’s founders have the right to require the buyer to acquire the remaining shares in the company for up to $355 million. The put option lasts one year and starts one year after the deal closes. Gland’s overall valuation is unchanged.

- Fosun will also retain the right to appoint seven out of nine of Gland’s directors.

- U.S. private equity firm KKR acquired nearly 38 percent of Gland in 2013 for an estimated $200 million, according to Thomson Reuters data.

- For previous columns by the author, Reuters customers can click on


Editing by Quentin Webb and Katrina Hamlin

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