LIC, Other Financial Institutions Decline GSK Consumer Open Offer

In the month of November 2012, GlaxoSmithKline Pte along with Horlicks and GlaxoSmithKline plc, has made an voluntary open offer at Rs 3900 per share to acquire 31.84% of the voting share capital of GlaxoSmithkline Consumer Healthcare (GSK Consumer). After the open offer, the stake of the acquirer will move to 75% from 43.16% at present in its Indian subsidiary. The buyback of shares will cost the company around Rs 5200 crore.

In a recent development, financial institutions (FIs) have declined to participate in the open offer. The consortium led by LIC of India along with Arisaig Partners, SBI Mutual Fund and GIC of India has cited the price that the company has proposed as unattractive. These institutions, including the FIIs, jointly hold stake of around 32% in the company. The remaining 24.95% stake is held by retail and corporate bodies.

The development that has taken place can be negative as the offer for buyback is slated to begin from next week. We have to keep a close watch on the developments, as to whether the FIs will be able to renegotiate the prices in the northward direction or not.

A report in a leading newspaper said that “a series of meetings between HSBC, the banker to the open offer, and the institutions was held over the past few weeks on the open-offer price but nothing concrete came out of it.” But when we contacted HSBC, the reply that we received was that this is the decision of individual shareholders and they will be not be the right entities to comment on that.

If we look at the price movement, though, in the last calendar year the scrip has yielded a return of 52.23%. At present, it is trading just below the open offer price at Rs 3860. Now, the question comes whether the management will review its price upward and will yield to the FIs' demand. But, there have been instances where the position of the FIs has been on a shaky ground due to the lack of unity between them. This has happened earlier in the case of Akzo Nobel, where one of the institutions went ahead with the price decided by the management.

Also, if the open offer goes through and after reaching the 75% mark, will the management of GSK Consumer go for a de-listing? We need to keep a close watch on this. If the management bows down and revises the prices upwards, then the prices may witness some northward movement. The last date of revising the price is January 14, 2013.