NVS Novartis AG

By Nathan Allen 

GlaxoSmithKline PLC agreed to pay Novartis AG $13 billion for its 36.5% stake in their consumer health care joint venture, moving to consolidate the unit just three years after it and Novartis joined forces.

The deal is the first significant strategic move for both companies' young and newly installed chief executives, as they reposition their respective companies amid a series of other reviews and deal making across the industry.

GSK Chief Executive Emma Walmsley, 48 years old, has moved to shake up the company's drug-research efforts , reshuffling or letting go hundreds of executives and scientists since taking over about a year ago. That is part of an industry wide effort at several big pharmaceutical firms to refocus attention and resources on the high-risk, but high-reward business of discovering and bringing to market new drugs.

Novartis Chief Executive Vasant Narasimhan, 41, on the job just since February, has similarly said his main aim is to reinvigorate the company's drug discovery pipeline.

Amid those efforts, both have also been considering how to prune, or bolster, their businesses at the deal table. GSK was among several companies kicking the tires at Pfizer Inc.'s large consumer-goods business, but last week said it wouldn't bid.

Novartis, meanwhile, is considering a sale or spin off its Alcon eye business, and Dr. Narasimhan has said he is also considering options for its U.S. generics business.

For Ms. Walmsley, the Novartis deal will bolster GSK's already-large consumer health business -- but won't be as big a bite as a deal to buy Pfizer's business would have been.

Ms. Walmsley ran GSK's consumer-health business before taking over as CEO. Under her predecessor, Andrew Witty, the company bulked up the business -- which sells things like toothpaste and over-the-counter remedies like cold and flu medicine -- as a hedge against the volatile business of making and marketing new drugs.

In 2014, he agreed with Novartis to combine their consumer-health businesses, creating a giant that brought some of the world's best-known brands under one roof -- including Excedrin pain medicine and antismoking aides like NiQuitin.

That was part of a bigger series of transactions between the two. The deals, completed the following year, beefed up GSK's consumer health and vaccines footprint. Novartis, meanwhile, bought GSK's cancer drugs business.

Tuesday's deal gives GSK full ownership of that joint venture, and increasing its exposure to that business. It gives Dr. Narasimhan a chance to exit what he says is now a lower-priority business for him.

"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," Dr. Narasimhan said. The proceeds of the deal will be used to fund shareholder returns and pursue bolt-on acquisitions, he said.

Under the terms of the transaction, the joint venture's four Novartis-appointed directors will step down, Novartis said.

Following completion, GSK said it expects the deal to boost earnings in 2018 and strengthen cash flow, while the business should post operating margins in the mid-20% range by 2022.

GSK said it would also begin a strategic review of its Horlicks brand and other consumer-nutrition products with a view to funding transactions. The deal, which is expected to close in the second quarter, is subject to approval from GSK shareholders.

(END) Dow Jones Newswires

March 27, 2018 03:37 ET (07:37 GMT)

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