Fosun, said to be stymied by India's buyout rules, now aims for smaller Gland Pharma stake in $1.1B deal

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In a revised offer, Fosun Pharma will shell out $1.1 billion to nab 74% of Indian drugmaker Gland Pharma's shares.

Fosun seems determined to take control of India’s Gland Pharma. After its $1.26 billion deal for an 86% stake was reportedly struck down by India’s cabinet, the Chinese pharma has dialed down the offer to $1.1 billion for 74%. And that's just enough to circumvent the Indian government’s scrutiny.

However, Fosun didn’t cite the regulatory blockade as its reason for revising the deal in its most recent filing (Chinese, PDF) to the Shanghai Stock Exchange.

“Given Gland Pharma’s operation is in good condition, the founder shareholders intend to maintain a higher stake in Gland Pharma without impact on Fosun obtaining a controlling share in Gland Pharma,” the filing said.

However, it did mention that, after shaving back the deal size, the transaction does not require approval from the India Foreign Investment Promotion Board and India’s Cabinet Committee on Economic Affairs (CCEA).

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In an effort to boost the country’s pharma sector, the Indian government in June loosened up its rules for foreign investment, allowing an automatic permit route for investments in existing biopharma businesses of up to 74%. Only foreign investment in a pharma company above that threshold requires government approval.

Fosun struck a deal in July last year to buy an 86% stake valued at $1.26 billion in the Indian drugmaker, which specializes in generic injectables, but Bloomberg earlier reported that the deal was poised to be rejected by CCEA. It was widely speculated that the rising territorial tensions between China and India played into that decision.

Fosun said in the filing that Chinese authorities have already cleared the deal, and U.S. and Indian antitrust filings have been completed. After the transaction, the 38% share previously owned by private equity firm KKR will be transferred to Fosun, and the approximately 42% share owned by Gland’s founding family will be reduced to 22%.

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The $1.1 billion price includes up to $25 million that Fosun would pay if Gland’s anticoagulant drug enoxaparin nabs a U.S. FDA approval as hoped, cutting the previous proposed milestone by half.

According to Fosun’s filing, Gland revenues in the fiscal year ending in March were Rs 1,490 crore ($232 million), with 3.14 million rupees in profits.

Fosun Pharma’s parent company, Fosun International, has been one of the poster children of Chinese overseas purchases. It was said to be one of the targets in the China banking regulator’s investigations into “systemic risks” related to debt-fueled foreign M&A.

That doesn’t seem to have stopped the company, at least not in the pharmaceutical sector. In August, Fosun Pharma said it launched a bid for a stake in U.S. specialty drugmaker Arbor Pharma, which sells the heart failure drug Bidil and hypertension drug Edarbi, among others.

For the Gland deal, even after the trimming, $1.1 billion would still make the transaction the largest made by a Chinese pharma abroad.