NVS Novartis AG

By Nathan Allen and Noemie Bisserbe 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 28, 2018).

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 28, 2018 02:47 ET (06:47 GMT)

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