|Mumbai: The Swiss company Novartis is set to increase stake in its Indian subsidiary to nearly 90 per cent from the existing 51 per cent. |
The company said it would go in for a tender offer to acquire an additional stake of about 39 per cent in its majority-owned Indian subsidiary, Novartis India Ltd, from public shareholders at a price of Rs 351 a share. The offer represents a total value of up to Rs 440 crore.
Novartis stock price shot up 20 per cent to Rs 330, following the announcement on the BSE, early Wednesday.
The Indian arm is the only listed entity Novartis has, outside its headquarters in Basel.
The decision will help consolidate Novartis’ economic ownership, an investment banking source said, adding that there was nothing “diabolical” about the timing of the offer. Other multinational companies too have their only listed entity in India, in keeping with regulatory requirements.
Explaining the valuation, he said, the price of Rs 351 was last visited by the Novartis stock in January 2008, when the stock market was at its peak.
The stock is infrequently traded, he said, adding that an average of about 5,420 shares was traded a day in the last six months. Novartis AG’s offer is at a premium of 27 per cent to the closing share price of Rs 275.6 of Novartis India Ltd on March 24, which was the last trading day before this announcement. It also represents a premium of 35 per cent over Novartis India Ltd’s average share price during the last month.
Also, at present there has been no decision taken on delisting locally. The note from Novartis AG too does not state as much.
However, if the company’s public float falls below 25 per cent, as it would if the parent’s equity increases to 90 per cent, that could be a violation of the Takeover Code and Listing Agreement, a regulatory expert said. Unless, the public float itself is 10 per cent, the expert added, asked whether Novartis was headed for a delisting.
Mr Ranjit Kapadia of PCG-Prabhudas Lilladher observed that the offer price did not reflect the fair value of the share price. The cash-on-book and brand valuation together exceeds the offer price, he added.
Novartis has Rs 475 crore cash on its books and it has good brands like the Rs 140-crore painkiller Voveran, he said. There is a possibility of delisting at a later date, he added, as it brings in less accountability to shareholders.