Mumbai: Multinational drug makers are buying out Indian shareholders in their local subsidiaries to make the most of the Rs55,000 crore Indian drug market that has been growing 16% a year in value terms.
The world’s largest drug maker Pfizer Inc. said on Monday that it would raise its holding in Indian arm Pfizer Ltd to 75%. Pfizer currently owns 41.23% in the Indian firm through a string of group companies such as Pfizer Corp. Inc., Parke-Davis and Co. Ltd, Warner Lambert Co. Ltd and Pharmacia Inc.
This decision comes a fortnight after Swiss drug multinational Novartis AG announced its plan to raise its share holding in Indian subsidiary Novartis India Ltd to 90%, from the current 51%, through a tender offer to public shareholders.
More control: Pfizer headquarters in New York. The newly introduced product patent regime in India is encouraging multinational companies to seek control of their local subsidiaries. Joe Tabacca / Bloomberg
Pfizer Investments Netherlands BV, an investment arm of the US drug multinational, announced that it will make an offer to buy an additional 33.77% shares in the Indian company from public shareholders.
According to a Pfizer Investment release, the offer will be made at Rs675, a premium of 8.3% over the closing share price of Rs621.55 of Pfizer on 9 April, the last trading day before the announcement of the tender offer, on the Bombay Stock Exchange (BSE).
It is also a premium of around 22% over the average share price of Pfizer in the past 30 days ended 9 April.
The shares of Pfizer (India) rose 10.02% on Monday to close at Rs685.4 on BSE, 1.54% higher than the offer price.
The total acquisition cost for Pfizer: Rs680 crore.
Pfizer and Novartis have joined a long list of promoters that have embarked on share buyback programmes since April 2008, converting the fall in stock prices into an opportunity to increase their stake in local companies. Pfizer and Novartis together plan to spend Rs1,120 crore to buy back their shares from public share holders.
Depressed stock prices are one of the many reasons behind the foreign drug firms’ aggressive plans to raise stakes in their Indian subsidiaries.
According to an industry analyst with a foreign brokerage, who did not want to be identified, foreign companies want to increase their stakes in Indian companies because of the phenomenal growth potential that this Rs55,000 crore local market is offering.
“A significant majority on the board will help them making faster decisions as far as the local strategies are concerned, especially matters related to transfer pricing (from parent to local arm), and launch of expensive but high-margin products through exclusive channels, etc,” he said.
The newly introduced product patent regime in India is yet another factor that is encouraging multinational drug companies to seek control on their local subsidiaries.
According to investment bankers, the foreign firms want to increase their holdings beyond 74% as under Indian corporate law an investor with at least 26% stake can block any special resolution.
Once the MNC drug firms raise their stakes beyond 74%, they would not need to worry about such investors and get full control of the local arm.
The Pfizer tender offer for the public shares traded on BSE and National Stock Exchange of India, is expected to open in June 2009. It will be managed by HSBC Securities and Capital Markets (India) Pvt. Ltd.
The company will soon make a public announcement of the tender offer as required by the capital market watchdog Securities and Exchange Board of India (Sebi).
As the stock price has already crossed the open offer price, analysts expect Pfizer to raise the offer price as otherwise public shareholders may not be encouraged to sell the shares to the company.
“Since Pfizer’s global acquisition of Wyeth Inc. will help improving growth potential of the company in India, the investors would certainly look for an upward revision of the offer price, which the company would possibly consider later,” say Kirit Gogri, a pharma analyst with Mumbai-based Quant Brokerage Pvt. Ltd.
In last week of March, Novartis had announced its plan to launch a tender offer to acquire about 39% shares from the public shareholders at Rs351 per share, at a premium of 27% to the closing price of Rs275.6 of Novartis India on the last trading day before the offer was made.
Novartis stock closed at Rs369.95 on Monday, 5.3% higher than the offer price.
Some of the world’s top drug firms such as Pfizer, Novartis, GlaxoSmithKline Plc., Merck KgaA are finding it difficult to grow in developed markets such as US and Europe because of governments’ move to cut health-care costs, generic competition and lack of new drugs in the launch pipeline. They are now increasingly turning to emerging economies.
“Moves like this will help the companies consolidate their position in India, one of the fastest growing markets in the world with an average annual growth of 16%,” said an investment banker.