Shareholders of Gland Pharma eye 74% stake sale in revised plan

RULES ALLOW FDI OF UP TO 74% IN PHARMA COMPANIES THROUGH THE AUTOMATIC ROUTE. FOREIGN INVESTMENT OF MORE THAN 74% NEEDS GOVT APPROVAL

MUMBAI: The shareholders of Gland Pharma, including buyout firm KKR & Co, are considering selling up to 74% stake under the automatic approval route to China’s Fosun International after failing to secure government approval for a 86% stake sale so far, two people aware of the discussions said.

The new structure is being considered as an alternative, if approval for the deal, pending before the Cabinet Committee of Economic Affairs (CCEA) for three months, does not come through. “Both sides have extended the exclusivity period to conclude the deal to end of September,” the people cited above said, requesting anonymity.

Hong Kong-listed Shanghai Fosun Pharmaceutical (Group) Co Ltd agreed to buy around 86% in Gland Pharma for $1.3 billion in July 2016.

In July, Bloomberg, citing people familiar with the matter, reported that CCEA has blocked the deal, but the companies have not been told about the decision. Media reports since then have cited the delay in approval to a surge in border tensions between India and China as well as concerns around transfer of technology to Chinese companies.

Gland Pharma, KKR and Fosun International did not respond to requests for comment. Ravi Penmetsa, MD of Gland did not respond to phone calls and text messages.

“While both sides are still hopeful that the approval of the deal will come in the current form but a revised proposal is being actively considered, which will allow Fosun to acquire up to 74% stake in Gland without government approval,” one of the two people cited earlier said.

KKR had acquired close to 36% in the company in 2013 for $200 million from Evolvence India Life Sciences Fund. KKR’s 36% stake is now valued at $540 million.

According to the terms of the original transaction, KKR will sell its entire stake. Gland Pharma’s other investors, including founder PVN Raju, his son Ravi Penmetsa, and the Vetter family would also sell a part of their stakes.

Regulations announced in June last year allows foreign direct investment of up to 74% in existing pharmaceutical companies through the automatic route, while allowing foreign investments that involve acquiring more than 74% through the government approval route.