By Alex Dombrowski, International Business Writer
China’s Fosun Pharmaceutical Group plans to acquire 74 percent of India’s Gland Pharma for $1.1 billion. Fosun group has changed its buyout agreement with the Indian small volume parenteral manufacturer to allow the deal to proceed without getting caught up in regulations that halted a previous purchase attempt.
The earlier agreement included Fosun buying 86 percent of Gland Pharma, but that deal had been put on the backburner due to government regulations stemming from concerns over foreign investment in India. India’s government was worried about Chinese firms buying India’s production companies and regulating policy. Concerns surfaced because of tensions surrounding the Dokalam standoff.
The standoff was a period of unrest between China and India over control of the Dokalam region, which spans the border between the Chinese province of Tibet and the country of Bhutan. India supports Bhutan’s claim to the land, mainly because the citizens of Chinese Tibet are seeking secession from China. These tensions came to a head when the Chinese attempted to stretch a road into the Bhutanese portion of the land, toward the Bhutanese army. India, who handles defense for its ally, Bhutan, sent troops to reinforce the region and stop the Chinese from building the road. On August 28, both sides agreed to disengage as long as the Chinese halted construction of the road, deescalating the tensions.
The two companies finalized the deal at 74 percent to avoid stricter government restrictions on investments by foreign firms in India that kick in at 75 percent owndership. The transaction is set to become official on October 3. The acquisition allows Fosun to market the generic pharmaceuticals produced by Gland Pharma outside of its existing customers in India, but also in densely-populated areas such as China and other Southeast Asian countries.
The companies went out of their way during the announcement to assure shareholders of Gland Pharma that their investments would be protected. The president of the firm, Dr. Ravi Penmetsa, will continue to sit on the board of directors for the company. The day-to-day operations of the company will also remain unchanged after the buyout agreement. However, Fosun will appoint most of the other executive members from their ranks.
Before the official purchase date, the deal will need to be approved by United States antitrust filings because US company KKR had owned a 36 percent share of Gland Pharma. Gland Pharma’s US footprint was in manufacturing various essential drugs and selling them to distributors such as Mylan. In the US alone, Gland Pharma sells 65 separate products, selling even more in emerging markets around the globe. Dr. Pemetsa, the Gland Pharma President, said in a statement that their initial plan would be to trim their original expansion in the US, only spending about $25 million to expand their market in the US.
The transaction is a shrewd tactical move by the two international giants. After an initial failed attempt, the companies have implemented a plan that will allow for the mega-merger without getting stopped again by Indian regulation.
A version of this article appeared in the Tuesday, September 26th print edition.
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