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Image courtesy: Abbott India
Some multinationals have one governance mantra for their Indian operations and another one for their works in other countries.
A case in point is New York Stock Exchange (NYSE)-listed pharmaceuticals giant Abbott Laboratories, which segregated its proprietary products division (PPD) into a separate entity named AbbVie Inc. The restructuring, completed in January 2013, led to the listing of AbbVie on NSYE.
Abbott has described AbbVie as a research-based specialty biopharmaceuticals company; whereas trimmed Abbott has been defined as a science-based healthcare company with diversified market-leading offerings in diagnostics, medical devices, nutritionals and branded generic pharmaceuticals.
This restructuring approach has, however, not been applied to Abbott’s 74.99%-owned subsidiary Abbott India Limited (AIL), which is listed on the BSE, Mumbai.
AbbVie’s wholly owned Dutch subsidiary, AbbVie Japan Holdings, B.V., on the other hand, intend to set up a wholly-owned Indian subsidiary, which would buy AIL’s PPD business. 
This business involves wholesale trading of pharmaceuticals in India. PPD division does not involve manufacturing and research and development in the country. AbbVie’s proposed Indian subsidiary would thus be importing pharmaceuticals and marketing them on wholesale basis.    
The Government has deferred clearance of this proposal as the AbbVie has not disclosed the quantum of money that it intends to invest in the proposed subsidiary. The Government has also asked the company disclose all the inter-se agreements to find out whether there is any non-compete clause. 
Under the revised pharma foreign direct investment (FDI) policy, the Government does not allow non-compete agreement between the acquirer and the promoters of Indian company or the Indian company as the case may be. 
Though the wholesale trading qualifies for automatic FDI approval under the cash & carry (C&C) wholesale trading policy, the Government has decided that automatic approval would not be applicable in the pharmaceuticals wholesale trading arena. 
AbbVie’s move to buy BSE-listed AIL’s PPD has been initiated without requisite clearance from latter’s board of directors and shareholders. In terse announcement on the BSE on 4th June 2013, AIL had stated that its Board decided to “defer the proposal received by the company for the sale and transfer of, or other appropriate restructuring of, the proprietary pharmaceuticals division of the company.”
Do the other restructuring proposals include PPD’s demerger into a separate company followed by listing on the BSE on the pattern of formation of AbbVie?
In any case, why has AIL not convened extraordinary general meeting (EGM) of its shareholders to discuss the best option for restructuring of PPD keeping view the interest of shareholders?
Like any other listed on the Indian stock exchanges, AIL is stingy in making disclosures. Indian subsidiaries of NYSE-listed companies should voluntarily follow the governance norms that are regularly complied with by the parent companies. 
When the Government reconsiders AbbVie’s application for setting up a wholly owned subsidiary, would the Government ask it to explain why it had not opted for creation of AbbVie India through demerger of PPD from AIL, followed by its listing on the BSE? 
 
You are here: Home Pharma & Healthcare Abbott’s Indian business restructuring move lacks transparency