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Glaxo eyes buyout of rest of Novartis consumer health JV for $10.3B

May 15, 2017

GlaxoSmithKline appears to be preparing for a major buyout of Novartis (NVS)’s stake in the two companies’ consumer health joint venture.

In March 2015, Swiss-based Novartis wrapped up a series of transactions with London, UK-based GSK. GSK bought Novartis’ global vaccines business, excluding the influenza vaccines. It created a Consumer Healthcare joint venture with Novartis, and sold its Oncology business to Novartis.

Now there are reports that GSK is preparing to offer Novartis $10.3 billion for Novartis’ 36.5 percent share of the joint venture. FiercePharma notes that, “Industry watchers say Novartis could use the extra dough to help fund a megatakeover—and word is, the potential target is AstraZeneca (AZN).”

An unidentified GSK investor told The Sunday Times, “They [Glaxo] have been consistent all along that this is a business they want to own, and will move forward when the time is right.”

This news follows shortly after Neil Woodford, of UK’s Woodford Investment Management, unloaded his company’s shares of GSK. Woodford has for several years pushed for GSK to break up, arguing that the separate parts are stronger than the collective whole. In a blog post titled “Glaxit,” Woodford wrote, “Put simply, investing in Glaxo has been a frustrating experience, with three out of the four business units perennial underperformers.”

Which is interesting, because GSK’s first-quarter financials on April 26, cited sales growth across Pharmaceuticals, Vaccines and Consumer Healthcare, exceeding projections. The company’s new chief executive officer, Emma Walmsley, said in a statement, “This is a positive start for the year with sales growth in all three of our businesses and an improvement in the Group’s operating margin. Our clear focus is on commercial execution and preparation for near-term launches in Respiratory, HIV and Vaccines.”

Walmsley is the former head of the joint venture. FiercePharma notes, “Buying out Novartis would give GSK control of the biggest consumer health operations on the globe.”

A Novartis acquisition of AstraZeneca would be big news in the pharma industry, particularly in the oncology market. FiercePharma writes, “While the Basel-based company has plenty going on in oncology, it lacks a first-wave immunotherapy program, and AstraZeneca’s has shown some major progress over the past couple of weeks with the initial approval of Imfinzi (durvalumab) and follow-up data that could give the brand-new med a big market boost.”

inVezz noted that GSK’s share price dropped this morning, losing 0.66 percent. “The stock is underperforming the broader London market, with the benchmark FTSE 100 index having climbed into positive territory and currently standing 0.31 percent higher at 7,458.61 points. The group’s shares have added more than 13 percent to their value over the past year, and are up by some five percent in the year-to-date.”

GlaxoSmithKline stock is currently trading at $43.26.

Novartis stock is currently trading at $80.62.

AstraZeneca stock is currently trading at $34.03.

Any buyout probably wouldn’t occur until at least March 2018.

This Is Money seems to think GSK investors wouldn’t approve of this acquisition, particularly after Woodford’s abandonment. The argument appears to be, “Woodford is one of Britain’s most successful fund managers, and his lack of confidence could spook GSK’s other major shareholders.”

Walmsley is believed to support keeping GSK intact—not breaking it up as Woodford wanted—although she has already suggested she’s interested in acquisitions, primarily buying early-stage drugs. Picking up the rest of the joint venture would be a big deal, and cement the company’s control over brands like Horlicks, Nicorette and Beechams.

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