Glenmark to divest 75% stake in Glenmark Life Sciences to Nirma; stock slips

• Glenmark, which currently owns 82.84% in GLS, will own just 7.84% stake after the divestment.
• Glenmark says one of the reasons for divestment is the divergent business models of the company and its subsidiary.
• Nirma will make an open offer for a 17.15% stake in GLS at an offer price of Rs 631 per share.

The Glenmark Pharmaceuticals stock was almost down 5% in Friday morning trade after the pharma major announced last evening that its board has approved to divest 75% stake in its subsidiary Glenmark Life Sciences to Nirma Ltd for Rs 5,651.5 crore, and proceeds would be used to repay debt and deleverage the balance sheet. As per the definitive agreement, the Mumbai-based drug maker will offload a 75% stake in Glenmark Life Sciences (GLS) to Nirma Ltd at a price of Rs 615 per share.

Meanwhile, the Glenmark Life Sciences share price is down 1.1% at the time of publishing. For context, the benchmark, Nifty50 is trading flat.

After the divestment, Glenmark, which currently owns 82.84% in GLS, will own just 7.84% stake after the completion of the transaction, the drug firm said in a statement.

Nirma will make an open offer for a 17.15% stake in GLS at an offer price of Rs 631 per share.

Later addressing a virtual press conference, Glenmark Pharmaceuticals Chairman and Managing Director Glenn Saldanha said a major reason for the stake sale in GLS was the divergent business models of the company and its subsidiary.

He noted that the generic drugs environment has changed over the years and is highly competitive, especially in the US market.

Going forward, he said, Glenmark Pharma will focus on branded products, complex generics and speciality drugs and move up the value chain as an innovation-driven entity.

When asked about the utilisation of the proceeds of the sale, Saldanha said it will be used to pay off debt, which will help the company become net cash positive.

Glenmark Pharma has a gross debt of Rs 4,600 crore and the company expects to receive around Rs 5,000 crore after tax.

"This deal aligns with our strategic intent of moving up the value chain to become an innovative/brand-led organisation, with continuous focus on our core therapeutic areas of dermatology, respiratory and oncology," he said.

The transaction is subject to customary closing conditions precedent, including receipt of regulatory and shareholder approvals, it added.

It also presents an opportunity for the company to strengthen shareholder value through deleveraging and enhancing the overall return profile, Saldanha said.

GLS Managing Director and CEO Yasir Rawjee said the announcement marks the next step in the journey of the company that will accelerate growth and help create more value for stakeholders in the long term.

"We will continue to operate as an independent API company under the new ownership of Nirma Ltd. I see this as an opportunity to further strengthen our position in the API industry and continue the growth trajectory," he added.

GLS is a developer and manufacturer of select high-value, non-commoditised active pharmaceutical ingredients (APIs) in chronic therapeutic areas.

It supplies products to many leading global generic pharmaceutical firms and works with 16 of the 20 largest generic companies globally.

Ahmedabad-based Nirma is known for its detergents, soap and dishwashing bars.

It is also into the manufacturing of industrial products like soda ash, linear alkyl benzene, alfa olefin sulphonates, fatty acid, glycerine and sulphuric acid.

As part of the transaction, Glenmark Pharma will continue to source certain APIs from GLS for a period of five financial years starting April 1, 2024.

After the deal closing, Glenmark Pharma's nominee directors on the board of GLS -- Glenn Saldanha and VS Mani -- will resign, and Nirma will appoint its nominee directors.

Glenmark shares on Thursday ended 3.32% down at Rs 828.05 apiece on the BSE.

(With text input from PTI)