14:10 merger for Glaxo, Burroughs

Merger likely to be completed in next six months, but to be w.e.f January 1, 2005.

The boards of directors of GlaxoSmithKline Pharmaceuticals and Burroughs Wellcome India agreed on a 14:10 swap ratio for the proposed merger of the two companies.

Both Glaxo and Burroughs's stock prices fell on news of the merger ratio. The Glaxo scrip declined 6.21 per cent to close at Rs 590.95 on the Bombay Stock Exchange (BSE), while the Burroughs scrip closed 6 per cent lower at Rs 798.45.

Glaxo India Managing Director S Kalyanasundaram said the company might opt for a buyback of its shares. The move will also enable parent GlaxoSmithKline Plc to increase its stake in the local arm to 51 per cent.

The current shareholding of the parent company in Glaxo India is 48.9 per cent, which is set to increase to 49.15 per cent after the merger.

"The parent company is currently reviewing the option of increasing its stake in Glaxo India to 51 per cent through a buyback of shares," Kalyanasundaram told Business Standard.

After the completion of merger formalities, Glaxo India might opt for a buyback using part of the surplus cash, he added.

The swap ratio for the merger is based on the valuation done by two independent valuers, Ernst & Young and Deloitte Haskins & Sells.

"We were looking forward to this merger in India for a long time. While operational integration took place some years ago, the legal integration will help to reduce complexity in our operations and promote corporate governance," Kaylanasundaram said.

The merger of Burroughs Wellcome India with Glaxo India has come about nine years after the merger of Glaxo Plc and Wellcome Plc, their global parents.

In India, the merger was on hold because of resistance from Wellcome's employee unions over disparities in the pay scales of the two firms.