Mumbai: GlaxoSmithKline Plc on Monday initiated an open offer to increase its stake by 31.8% in its Indian consumer products arm, GlaxoSmithKline Consumer Healthcare Ltd. It has launched a similar open offer in GlaxoSmithKline ConsumerNigeria Plc to increase its stake to 80%. Emerging markets account for around 40% of the company’s overall business spread across its pharmaceuticals and consumer units. In Mumbai to announce the open offer, David Redfern , chief strategy officer of GSK, said in an interview that while emerging markets were important, pharmaceuticals and advanced markets of the US and Japan would remain its primary drivers of growth. Edited excerpts:
What prompted you to come up with an open offer?
As always, it’s a combination of many factors but, fundamentally, we have a good view of the business and now is good time as any. There is a strong belief in the business, management, demographic of India and rising consumer spending. That the board was here last month, and got to see the business first hand, definitely helped. The move has also been influenced partly by the currency. It’s a good time to get foreign currency into India. The investment is almost between $900 million and $1 billion. From an investment point of view, we benefit since the rupee is a little weaker now.
You are increasing your stake up to 75% from 43%. Does this imply eventual delisting?
We have no desire to delist the company. One of the greatest successes of this business is it’s a business that not just markets the brands but develops and manufactures the brands. So it has a very strong link with the Indian consumer as the brands are specifically developed for the Indian consumer and the Indian market. Though it’s a part of GSK, it’s a very Indian business, and we want to retain that. At the same time, we want to offer an attractive premium of the business to the shareholders.
How have you priced the open offer?
It’s a 28% premium to the close on Friday. Remember as well, this is a stock that has traded well in the last few years. The premium is on top of a strong last four months. It’s a stock that’s not very liquid. The daily volumes in the market are very low. It provides a wonderful opportunity for those shareholders who are sitting on top of these shares and want to liquidate it.
The offer comes at a time when there is a slowdown in the country and consumers are cutting back on small spends...
The Indian consumer business is an important part of our overall consumer business. It’s a business that is growing strongly organically at about 19% in the last few years. Of course, like everywhere else, there are short-term economic issues here. But we believe there will be per capita growth in consumer spending; so it’s a business we want to own more of. We are very positive about India.
Can we expect any investment in the company?
Right now, the only investment we are getting in will go to the shareholders of the company—institutional and retail. So it creates value for India, but does not actually have any impact on the firm. But it is a very positive signal for the company. The decision doesn’t impact the cash that is there in the Indian unit and there is quite a bit of cash in the consumer healthcare company, and that remains available for opportunities here. So it leaves intact the money in the Indian company to invest here. You can expect the management to invest in India.
What about inorganic growth?
I don’t rule it out, but the main focus is organic growth.
Will the move help you diversify?
One of the things about consumer business particularly, is that the key to growth is not diversifying. You are actually better off having very, very strong power brands and putting your investments behind them and building them. That has been the strategy. You will see Horlicks brand extensions and we will continue to develop the brands that we have got here.
Do you see India and emerging markets as growth drivers?
Emerging markets are 40% of our overall business, across our pharmaceutical and consumer units. In pharmaceuticals, the key is very much to produce significant medical innovation. We invest £4 billion a year in R&D (research and development) and the good news is we have a very exciting late-stage pipeline and products coming in next year. They will sell very well in America, Japan and some of them will be available in India. The real drivers for GSK will be pharmaceuticals, and this will be heavily supported by consumer and emerging markets.