China takes over

China takes over
Shanghai Fosun Pharmaceutical Group has announced that it will be buying 74% of Gland Pharma, an Indian pharmaceutical company. The deal is worth $1.1 billion..

Shanghai Fosun Pharmaceutical Group has announced that it will be buying 74% of Gland Pharma, an Indian pharmaceutical company.

The deal is worth $1.1 billion.

Background

Fosun International Limited is an investment company and an international conglomerate based in China. It was founded in 1992 by Guo Guangchang and four other graduates of the Fudan University - Liang Xinjun, Wang Qunbin, Fan Wei, and Tan Jian. It began as a market research company but soon diversified with investments in healthcare industry and real estate. Especially between 2010 and 2015, the company invested billions of dollars in various industries including fashion, banking, tourism and healthcare. It has spent its lion’s share of investments in US and Europe.

In 2016, Fosun International bid a record $105 billion on various assets across the world including football clubs.  

Gland Pharma, founded in 1978, is an Indian manufacturer of Small Volume Parenterals (SVPs). According to the company, it is a pioneer in Heparin technology in India. It also states that it is globally renowned in the Glycosaminoglycans range of molecules. It is also a leader in injectibles.

Analysis

Shanghai Fosun Pharmaceutical Group (SFP) had made a formal bid to acquire 86% stake in Gland Pharma for $1.3 billion. In India, foreign investment is allowed up to 100% in the pharmaceutical sector. However, the government has to approve for any investment higher than 74%. In August 2017, reports emerged that the Indian government had not approved SFP’s bid. At the time, unnamed officials said that the government was concerned over proprietary technology. The centre was worried that the technology that was developed specifically by Gland Pharma would land in the hands of foreign nationals.

In September 2017, it was confirmed by Gland Pharma as well as SFP that the deal had been re-worked to bypass the Indian government entirely. SFP had agreed to acquire 74% of Gland Pharma. The new deal is worth $1.1 billion. The companies will no longer have to seek approval from the Cabinet Committee on Economic Affairs. The Prime Minister Narendra Modi heads that body. SFP has also revealed that it has already received the necessary permission from Chinese authorities.

According to the Reuters, this deal is the largest takeover by a Chinese company in India.

Assessment

Our assessment is that many Indian pharmaceutical companies are backed by private equity firms and in the case of Gland, it is KKR & Co LP (KKR.N). As a business entity, they have exited at a record price of $1.1 billion. Recently, a unit of China’s Fosun Group had recently bid speciality drugmaker Arbor Pharmaceuticals LLC. Arbor is also backed by KKR & Co LP (KKR.N). We feel that both KKR is divesting from their two pharmaceutical investments. 

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