GSK buys out Novartis for $13 billion
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GSK buys out Novartis for $13 billion

Pharmaceutical giant GlaxoSmithKline (GSK) has agreed to buy out Novartis’ stake in their joint venture, which includes Panadol pain relief, Theraflu cold remedies, and Sensodyne toothpaste. It’s a reflection of the two companies’ differing focuses going forward: Novartis wants to ramp up its prescription medicine offerings, while GSK is looking towards consumer health. The move has been some time coming, and marks a success for Emma Walmsley, GSK’s new CEO, who named it as one of her priorities last year.

GSK has had an incredible week, according to its share price!

graph 2903 gsk

SOURCE: Yahoo Finance

The news comes hot on the heels of GSK’s abandonment of its bid for Pfizer’s consumer unit. Investors were happy that Walmsley dropped the Pfizer deal, and they’re even happier about this news: GSK’s share price rose by 7.5% – its biggest single-day appreciation since 2008! 

The buy-out forms a central part of Walmsley’s strategy to turn GSK into a three-pronged outfit that balances “steadily performing” consumer and vaccine businesses against “more volatile” pharmaceutical operations.

Tara Raveendran, a Shore Capital analyst based in London, says the only way this strategy works is if GSK becomes a leader in each of those businesses. Speaking about the value of the buy-out, Raveendran says: “In consumer in particular you need scale, and there aren’t that many assets out there that would have given them momentum to achieve that.”

Walmsley said that the deal “allows our shareholders to capture full value” of the consumer business.  She added: “that is a business we know very well, and we are confident in its prospects.”

Also speaking about the buy-out, Novartis’ CEO Vas Narasimhan said: “While our consumer health-care joint venture with GSK is progressing well, the time is right for Novartis to divest a noncore asset at an attractive price.”

Disclosure

Dominion holds GlaxoSmithKline in its Global Trends Managed Fund.


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