Pfizer to raise stake in Pfizer India to 75%; is delisting on the cards?

Pfizer Investment Netherlands BV, a subsidiary of Pfizer Inc, will pay Rs 675 a share to acquire a 33.77% stake in Pfizer India. At this price, the total consideration is Rs 680 crore and Pfizer’s stake will go up to 75%. It will take regulatory approvals for the open offer. Pfizer will have to revise its offer price for the open offer to succeed, as the current market price is already Rs 685. It would have known it may not get many buyers at this price. But it expects the offer to open only in June 2009, so it has used the prevailing price to arrive at a floor. Later, it can revise its open offer price in line with the Takeover regulations. Or, if the price falls by June 2009, the offer may seem attractive to shareholders.

Why 75% and not 51%?

Even with a 41.23% stake, Pfizer effectively controls the company. It could have hiked its stake to 51% to exercise majority control. The difference between 51% and 75% comes into play in shareholder meetings, when special resolutions are put to a poll vote. The move to substantially increase its stake mirrors attempts by other pharmaceutical multinationals to hike their stake in their listed Indian subsidiaries. Novartis is the most recent case, where the company has sought to increase its stake to 90%. Mylan Inc is seeking to acquire the entire public stake in Matrix Laboratories and delist the company.

What happens if its stake rises to 75%?

Once Pfizer hikes its stake to 75%, the parent may decide to move for a delisting. There is some ambiguity on the threshold for delisting; in most cases it becomes mandatory if the public stake goes below 10% but in some it can also be applicable at 25%. This is due to the listing agreement condition of at least 25% public stake to be listed. A voluntary delisting proposal will mean an offer at a price, demanded by shareholders through a reverse book building process. This usually results in a hefty premium over the market price, with shareholders gaining significantly.

Will Pfizer actually delist?

Most multinational companies would prefer to own 100% of their subsidiaries globally. Being listed in their home country, their desire to stay listed elsewhere is limited. They do so either due to government diktats (most listed MNCs in India were forced to dilute their holdings) or because they acquired a domestic company (Matrix Labs is a subsidiary of Mylan due to an acquisition). Many MNCs like Cadbury, Philips and United Technologies have already delisted their Indian subsidiaries. Pfizer may well join their ranks. Here is the release from Pfizer

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