Mumbai: Multinational drug makers Novartis AG and Pfizer Inc., which had announced buy-backs of shares in their listed subsidiaries in India, are in no mood to revise the offer prices despite a surge in the stocks since the offers were made.
Also See Market Play (Graphics)
While the companies said the offer prices were already at a fair premium to shareholders, stock analysts and a sector expert from a large corporate advisory firm said Novartis and Pfizer may not be as serious as earlier to buy back the shares in a rising market.
Basel-based Novartis had on 25 March announced its plan to raise its stake in Novartis India Ltd to at least 90% from the current 50.9%, offering Rs351 a share to public stakeholders—a 27% premium to the closing price of Rs275.60 the previous day on the Bombay Stock Exchange (BSE).
Novartis India’s shares have risen 42% since then to close at Rs392.50 on BSE on Tuesday.
A day earlier, the shares had surged to Rs410.00 riding a wave that saw the BSE’s bellwether index, the Sensex, rise 17.34% in a welcome to the new, stronger United Progressive Alliance government, no longer dependent on the support of the Communist parties. On Tuesday, the Sensex was nearly flat.
The company had in May postponed the opening and closing dates of the offer. It said this was only because of additional requests from regulators and did not have anything to do with shareholder response to the offer, valued at Rs440 crore. “We believe that our initial offer provides a fair deal, offering shareholders a considerable premium over how the stock was trading prior to the announcement,” Novartis’s spokesperson Eric Altoff said in an email from Basel. On whether the company expects a positive response from shareholders now that the market price has surged beyond the offer price, Altoff said “This would be speculation at this point.”
Hitesh Sharma, partner and national leader (pharma and healthcare practices) at Ernst and Young, a global corporate advisory firm, in India, said share buy-backs are purely linked to market valuation and companies use this route to raise their stake when the prices are low.
“Since it’s nothing related to key operational strategies, both Novartis and Pfizer may not be serious to pursue the option as well at this juncture,” he said.
Agreeing with Sharma, Kirit Gogri, a pharma analyst with Mumbai-based Quant Broking Pvt. Ltd, said the two companies would ultimately want to de-list the stock from Indian stock exchanges by raising their holding to 90%, which will give them freedom from market regulations. “If it doesn’t work now, they may do it later when the stock prices are down again.”
In announcing the share buy-back offers, Novartis and Pfizer had joined a long list of promoters who have embarked on similar programmes since April 2008, attempting to take advantage of the fall in stock prices to increase their stakes in companies. The Sensex had declined 52% in 2008, but has regained ground this year climbing some 48% so far.
Pfizer, the world’s largest drug maker, had in April said it would raise its holding in its Indian arm, Pfizer Ltd, to 75% from about 41%, through a string of group companies such as Pfizer Corp. Inc., Parke-Davis and Co. Ltd, Warner Lambert Co. Ltd and Pharmacia Inc.
Pfizer’s offer for the buy-back of shares in its Indian unit was at Rs675 each, a premium of 8.3% to the closing price of Rs623 on 9 April, the last trading day before the announcement was made. The scrip’s price has climbed nearly 5% since then to close at Rs718.20 on BSE on Tuesday. A Pfizer spokesperson from New York said “Pfizer’s offer remains at that which was announced on April 13, 2009.”
Graphics by Sandeep Bhatnagar / Mint