GSK Buys Novartis's Stake in Health-Care Unit for $13 Billion -- 4th Update
March 27 2018 - 9:00AM
Dow Jones News
By Nathan Allen and Noemie Bisserbe
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 the two companies
joined forces.
The deal is the first significant strategic move for both
companies' young and newly installed chief executives, as they
reposition their respective firms 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 a broader industrywide effort at
several big pharmaceutical firms -- including Novartis -- to
refocus attention and resources on the high-risk, but high-reward
business of discovering and bringing to market new drugs.
Amid that push, 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-health
business, but last week said it wouldn't bid. Novartis, meanwhile,
is considering a sale or spin off its Alcon eye business, while
also weighing options for its U.S. generics business.
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. As part of a deal announced
in 2014 and completed the next year that created the joint venture,
Novartis starting this month was entitled to require GSK to buy the
rest of its stake.
"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 in a
statement. The proceeds of the deal will be used to fund
shareholder returns and pursue bolt-on acquisitions, he said.
Ms. Walmsley characterized the deal as a way of anchoring her
own efforts at refocusing the company on research and development.
The slower-growing, but often steadier, sales from consumer-health
products, like toothpaste and over-the-counter cough and flu
medicine, can serve as a crutch for the often more volatile
business of creating and marketing new drugs.
"Our number one priority is the strengthening of our pharma
business and at the heart of that is R&D and its pipeline,"
said Ms. Walmsley in a conference call with reporters. This deal
"brings more certainty" and "allows us the flexibility to invest in
R&D as appropriate," she said.
Investors in both companies endorsed the deal. Shares in GSK
were up 6.4% in afternoon trading in London, while Novartis rose
2.2% in Zurich.
Ms. Walmsley ran GSK's consumer-health business for more than
five years before taking over as CEO in April 2017. Her
predecessor, Andrew Witty, 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, antismoking aides like NiQuitin and Theraflu cold
medicine.
That was just one part of a bigger series of transactions
between the two. The deals beefed up GSK's consumer health and
vaccines footprint. Novartis, meanwhile, bought GSK's cancer drugs
business.
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. Most of Horlicks and other nutrition products sales
are in India, said Ms. Walmsley.
The deal, which is expected to close in the second quarter, is
subject to approval from GSK shareholders.
Write to Noemie Bisserbe at noemie.bisserbe@wsj.com
(END) Dow Jones Newswires
March 27, 2018 08:45 ET (12:45 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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