Mumbai: Swiss drug maker Novartis AG said on Wednesday it plans to raise its stake in its Indian subsidiary, Novartis India Ltd, from 50.9% to 90%, the maximum a foreign firm can hold in a listed subsidiary.
Novartis joins a long list of promoters that have embarked on share buy-back programmes in the 12 months since April 2008, using the fall in stock prices as an opportunity to increase their stake in companies. Since April last year, the Bombay Stock Exchange’s benchmark Sensex index has fallen 38.2%.
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The Basel-headquartered Novartis has offered a price of Rs351 per share to public investors who intend to tender their shares to the company. The total value of the offer is Rs440 crore. A Novartis release to the Bombay Stock Exchange (BSE) said the offer is at a premium of 27% to the closing price of Rs275.6 of Novartis India shares on Tuesday.
Following the announcement, Novartis India shares rose 19.99% to close at Rs330.70 each on BSE; the Sensex closed 2.08% higher at 9,667.90.
Novartis AG is the world’s fourth largest pharma company by sales and already has two wholly owned subsidiaries in India: Sandoz (India) Ltd and Novartis Healthcare Pvt. Ltd.
Novartis will launch the buyback offer in May. It has mandated DSP Merrill Lynch. It wasn’t immediately clear whether the buyback would be followed by an attempt to take the company private.
A Novartis India spokesperson declined comment since the announcement on the buy-back was made by “the parent”.
Analysts say shareholders might not be encouraged to respond to the offer. “The tender offer price at Rs351 a share is not very impressive compared to high cash balance in the Indian company’s balance sheet,” said one analyst at a foreign brokerage.
Novartis India ended with revenue of Rs553.13 crore in 2008. The cash on a company’s balance sheet is reflected in the valuation of share price because that forms the primary and most liquid component in a valuation. “Adjusting this liquid value of about Rs125 in each Novartis share at present, the net additional offer from the buyer is only Rs226 per share, which is low compared with the Indian company’s actual business potential,” said this analyst, who declined to be named because company policy prevents him from talking to the media without prior approval.
An investment banker who didn’t want to be identified said a higher stake would help Novartis’ management pass so-called special resolutions which usually deal with significant business decisions.
The move will also help the company consolidate its position in India, one of the fastest growing markets in the world with an average annual growth of 16%.
With Novartis, 47 firms have expressed intentions to buy shares from the open market in the year to March at a total estimated cost that could be as high as Rs4657.96 crore. The buy-back programme of Novartis will, however, hit the market only in the year that starts April 1. Many of the offers will close in next fiscal even though they were launched in current fiscal.
Last year, only 10 firms had launched buy-back plans and the money involved was Rs2004.44 crore.
Reliance Infrastructure Ltd’s second buyback plan in as many years, offering Rs700 per share to its investors, opened on 24 February and will end on 16 April. The firm had its first buy-back offer in fiscal 2008.
DLF Ltd, the nation’s biggest developer, announced a Rs1,100 crore buyback plan this year, offering Rs600 a share. The offer opened on 17 October 2008 and will end on 9 July.
The list of other firms that have announced buy-back of shares include Bosch Ltd (639.2 crore), Patni Computer Systems Ltd (237 crore), ICI India Ltd (183.77 crore) and Jindal Poly Films Ltd (150 crore).
The only multinational firm that announced a buy-back plan ahead of Novartis this year is Abbott India Ltd, the Indian arm of Abbott Laboratories, Illinois, USA. Abbott’s buy-back offer started on 18 August 2008 and will end on 2 September.
Graphics by Ahmed Raza Khan / Mint
Ashwin Ramarathinam contributed to this story.