Financial Daily from THE HINDU group of publications
Thursday, Mar 18, 2004
Financial Daily from THE HINDU group of publications Thursday, Mar 18, 2004 |
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Corporate
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Mergers & Acquisitions Merger with Burroughs: Swap ratio favours Glaxo shareholders Nath Balakrishnan
THE completion of the legal merger between GlaxoSmithKline Pharmaceuticals and Burroughs Wellcome - nine years after the merger at the global level - is significant as it ends uncertainty and periodic speculation on this score. During this period, there has been an integration of operations. Investors may now feel more confident about factoring in the beneficial effect of this integration into the stock price. The swap ratio appears to have veered away from market expectations. The merger ratio of seven shares of Glaxo for five shares of Burroughs appears to be favourable to the shareholders of the former. Hence, the expansionary impact on the consolidated equity base of Glaxo will be lower than what had been anticipated. The completion of the legal merger should also pave the way for the disposal of Burroughs' high-cost plant at Mulund in Mumbai. As this sale proceeds would bolster Glaxo's already comfortable cash position, there is the prospect of the company pursuing acquisitions and/or a buyback. Given, Glaxo's shareholder-friendly policies, a substantial one-time dividend payment may also not be ruled out. For instance, when Glaxo sold its family products division including the Complan brand to Heinz in the mid-1990s, close to half of the cash inflow was paid out as dividend, which amounted to Rs 105 crore; the rest was invested in Government securities and later used partly to bankroll the acquisition of Biddle Sawyer. On a consolidated basis, with revenues of Rs 1,390 crore and earnings of Rs 229 crore, Glaxo's position as the leading player in the domestic pharma market would get strengthened. Given the favourable equity swap ratio from Glaxo's perspective the higher valuation that the Glaxo stock enjoys as compared to its peers in the MNC pharma space can be expected to be sustained.
More Stories on : Mergers & Acquisitions | Pharmaceuticals
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