Novartis targets bigger stake in Indian division

Release Date: 2009-03-25

Novartis, the Swiss pharmaceuticals group, has launched an $87m bid designed to increase sharply majority ownership of its Indian subsidiary, Novartis India

Novartis, the Swiss pharmaceuticals group, has launched an $87m bid designed to increase sharply majority ownership of its Indian subsidiary. It is the latest of a series of similar moves by western companies to consolidate their ownership.

The company is offering Rs351 a share, in an effort to raise its stake from 50.9 per cent to just below 90 per cent in Novartis India, which is traded on the Bombay stock exchange.

Novartis’ move comes as a number of other multinationals adopt similar tactics at a time when low equity valuations and strong cash positions allow them to respond to changes in regulatory conditions in India easing their growing control.

Novartis’ tender, which is expected to begin in May subject to regulatory approvals, offers a premium of 27 per cent to Tuesday’s closing share price, and of 35 per cent over its average price during the past month.

The Swiss company already fully consolidates its Indian subsidiary, but raising its stake would also increase its freedom of manoeuvre with the subsidiary, given that Indian regulations require 75 per cent shareholder approval for some important strategic decisions.

The deal would sharply cut the dividends that it pays out to minority shareholders in the subsidiary, which amounted to nearly $3m last year.

It would also reduce the administration involved in handling about 5,000 Indian shareholders in a stock that is illiquid.

Foreign companies that have inherited or bought quoted Indian operations have traditionally found it difficult to delist them entirely, because stock exchange rules limit squeeze-outs by permitting minority shareholders to seek whatever price they choose.

However, Indian regulators changed the threshold three years ago so that companies could more easily reduce the stake held by minority shareholders without any such penalties from 25 per cent to 10 per cent.

Novartis has long had a commercial presence in India, but the group has shied away from research and development in the country partly because of concerns about weak intellectual property laws, including its failure to defend patent appeals on its cancer drug Glivec.

One Indian banker said that other recent similar moves had been taken by companies including Oracle, Bosch, BASF, BOC and Alfa Laval.

Other multinational companies including pharmaceuticals groups continue to operate Indian subsidiaries with substantial minority shareholders.

GlaxoSmithKline, for instance, controls 51 per cent of its local medicines business.

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