HONG KONG – Shanghai Fosun Pharmaceutical Group Co. Ltd. has made progress on its proposed purchase of the majority stake in India's Gland Pharma Ltd., with a recent amendment stating it would acquire 74 percent of the interest in the Hyderabad-based pharmaceutical company for $1.09 billion, instead of the original proposed 86 percent for $1.26 billion.

Even after the amendment, the deal would be the largest Chinese acquisition in India. But the adjustment helps the transaction bypass previous regulatory hurdles and gain automatic approval. (See BioWorld Today, July 29, 2016.)

The purchase will cover the 36 percent "significant minority stake" held by investment firm Kohlberg Kravis Roberts (KKR) Asia Ltd. The total purchase amount also includes a "contingent consideration" of no more than $25 million for the launch of Gland's enoxaparin, an anticoagulant product used to prevent blood clots.

Anita Davis, vice president of public affairs at KKR, told BioWorld Asia that she believes the two companies involved share a "great synergy."

"We have invested in Gland since June 2014 and we believe that with its international footprint and high quality operating momentum in health care, Fosun would be the ideal partner to help [Gland] take their R&D efforts to the next level," she said.

KKR had acquired its stake in the company for $200 million – it's now valued at around $540 million. That rise can be attributed to Gland's investment in a new manufacturing plant, significant optimization of existing facilities, enhanced R&D spend and focus, and its ability to file and own more intellectual property.

For Fosun, the acquisition would help cover an area that the China company's portfolio lacks, giving it better access in the Indian and U.S. markets. Gland produces a stable of generic injectable medicines and runs facilities approved to manufacture products for the U.S. market.

Upon close of the deal, Gland, meanwhile, would be able to manufacture and sell some of Fosun's biosimilar drugs for the Indian market. And Gland would improve its position in markets such as Africa, where it is currently reliant on third parties. The company will retain its existing management to oversee the day-to-day operations.

Davis also revealed that the completion date for the transaction had been given an extension, with the deal "to be closed sometime in early October."

Cross-border tensions

The conclusion to the agreement comes after a series of delays.

Early last month, Fosun's initial $1.26 billion purchase proposal of an 86 percent stake in Gland came into jeopardy. Reports were circulating in the industry that the Indian Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, might not grant approval to the transaction.

That came against a backdrop of political tension between the two countries over a renewed spat regarding territory in a remote area of the Himalayas, leading observers to speculate that it may have played a part in the delay. It is one of the most serious confrontations between the two Asian giants since a border war in 1962.

Yi Wang, a partner at Norton Rose Fulbright's Beijing office, had conceded to BioWorld Asia that it might have been the case.

"It's possible that cross-border political tensions may affect business deals, as behind-the-scenes, internal pressure could have created greater scrutiny and delayed a green light for the agreement," said Wang.

The agreement had already received approval from Chinese authorities; a thumbs-up from the Indian Cabinet Committee on Economic Affairs, which has the power to block purchases of more than 75 percent in certain types of companies, would have sealed the deal. The amended agreement allows for automatic approval.

The move also comes in the nick of time before the expiry of other global approvals, such as anti-trust filings in the U.S. and India as well approvals from Chinese authorities.

Securing domestic approval might be more challenging as Chinese authorities are clamping down on cross-border investments. Last month, China issued a formal guidance for outbound direct investments by Chinese companies, classifying them into three groups: encouraged, restricted and prohibited. The aim is to discourage investments that are counter to China's national interests or "irrational" risk taking by Chinese conglomerates amidst increasing scrutiny by the government and the public.

Chinese billionaire Guangchang Guo, who heads parent company Fosun International Ltd., has had to defend his previous acquisitions, which include French margarine maker St-Hubert.

According to data from financial market platform Dealogic, Fosun has spent about $11 billion in outbound mergers and acquisitions since 2011. The deals in that period cover a wide range of areas, from real estate like the One Chase Manhattan Plaza building to entertainment companies such as Cirque du Soleil.

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