Published On: Tue, Jul 23rd, 2013

GSK, UK biggest drug maker, pulls plug on Nigeria deal

Finally, UK-based GlaxoSmithKline (GSK) Plc has abandoned its plans of increasing its stake in GSK Consumer Nigeria plc. following public outcry by minority shareholders, which led to regulatory intervention.

Many market watchers believe that the decision to drop this plan, signposts Britain’s biggest drug maker’s unwillingness to adhere to the Nigerian capital market regulatory instructions concerning the deal.

BusinessDay learnt that the company had agreed to consult shareholders and the Securities and Exchange Commission about the proposal, including whether it should be implemented by way of a tender offer.

Before this development, BusinessDay had exclusively reported that the Securities and Exchange Commission (SEC) committed Chapel Hill Denham (the advisers on the deal) on two issues: first in relation to the equity price (asking that they should revisit the price at which the offer goes); and second, that the board members of GSK should not vote on this deal.

At the Nigerian bourse yesterday, some investors who apparently

thought GlaxoSmithKline (GSK) Plc would adhere to regulatory instructions by increasing the pricing of the stock in the deal, bought more shares of its Nigerian unit, a development which impacted the stock price positively, as it rose to N58.50kobo, from N55.

Analysts believe that abandoning this scheme that would have increased its indirect ownership in the unit to 75 percent, is a fresh setback for GlaxoSmithKline, which is battling a corruption scandal in China. GSK is the latest of a string of multinationals to be targeted by Chinese authorities over alleged corruption, price-fixing and quality controls.

Reacting on GSK plc’s decision to dump this deal, Boniface Okezie, president, Progressive Shareholders Association of Nigeria (PSAN) told BusinessDay that “The minority’s voice has become the majority. We said no to it. If we didn’t say no, they would have forced themselves on us, believing that we are fools.”

Okezie added: “What I tell my fellow shareholders is that we must continue to reject such moves, as far as we know our rights. We would have applied this to the Nigerian Bottling Company. Shareholders should not be cowards in future, and make them understand we cannot be pushed around.”

Also commenting on the development, Jimi Ogbobine, analysts at Consolidated Discount Limited (CDL) said: “Overall, I believe there is a need to have clear rules that govern this type of M&A deals. The regulator intervened in the GSK deal as it did for the Nigerian Bottling Company (NBC). But in the GSK instance, the company has opted to drop the deal (for now) rather than accept the regulator’s terms (N60).”

“In the NBC deal, the company may have been hard pressed and opted to accept the regulator’s terms. This is why we must have clear rules that are open and transparent to the market, to avoid knee-jerk reactions like these,” he added.

Ogbobine observed that “Despite this announcement, we still see investors holding on to the stock and adopting a wait and see approach. Going forward, the market will be monitoring trading activities on the shares of GSK, with a keen interest on the identities of the houses executing the transactions. This could help determine if there is a mop up of the shares by investors who seek to make an independent offer to GSK, UK.”

Reacting to this back-out by GSK plc over the planned deal, a source close to BusinessDay at the Securities and Exchange Commission, said: “This incidence confirms the absolute commitment of the SEC to protect investors. Particularly, investors should co-operate with the apex regulator to discharge its mandate of investor protection. What these guys (GSK plc) were contemplating wouldn’t have even come up at all, if most of our investment laws were put right. There is need for our lawmakers to set our investment laws right.”

GSK Consumer Nigeria Plc said in a statement yesterday, that their decision to withdraw follows consultations with shareholders and relevant regulatory bodies. Subsequently, GSK Nigeria will be suspending the proposed scheme of arrangement, at the meeting of its shareholders scheduled for tomorrow (July 23, 2013).”

Chidi Okoro, managing director, GSK Consumer Nigeria Plc, said “GSK as a company believes in fairness and transparency in all its processes, and we are committed to shareholders’ interest and the growth of the Nigerian economy”.

“GSK believes that the suspension of the scheme of arrangement is necessary, in order to consider appropriate amendments to the proposal; and in line with this, GSK will continue consultations with shareholders and the Securities and Exchange Commission, as to whether the proposal will be implemented by way of a tender offer or otherwise,” he said.

GSK worldwide plc recently outlined plans to expand its holding in its Nigerian unit from 46.4 percent to 75 percent. The U.K. company will buy about 321 million shares from existing shareholders at an offer price of N48 per share, for a total of N15.4 billion ($98 million).

In most developed markets, regulation expressly prohibits related parties from voting their shares in a transaction such as this. So in its home market in the UK, GSK Plc, as the related party, would not be allowed to vote and the scheme would need 75 percent approval from shareholders other than GSK Plc for the scheme to pass. But they had planned to the contrary.

Analysts observed that the Securities and Exchange Commission (SEC) may have acted on its mandate to protect investors, in accordance with the provisions of Section 13 of the Investment and Securities Act (ISA).

Before this development, fund managers and minority shareholders had raised questions on governance issues in the voting scheme which was perceived to have contravened corporate governance rules, as well as faulting the protection of the rights of minority shareholders.

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