GSK to Buy Out Novartis's Stake in Health-Care Venture for $13 Billion -- 2nd Update
March 27 2018 - 3:52AM
Dow Jones News
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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