FTSE 100 drug giant GlaxoSmithKline (GSK) yesterday unveiled a complex string of asset deals with Swiss rival Novartis in a move set to deliver a £4bn windfall for shareholders.
GSK closed up 5.2 per cent in trading yesterday after investors cheered the three-part transaction, which will see the business sell its cancer drugs offering to Novartis, buy Novartis' vaccines business, and form a joint venture with the Swiss firm containing both companies' consumer healthcare units.
Novartis will pay GSK $16bn (£9.5bn) for its cancer unit - broken down into a $14.5bn up-front payment and $1.5bn depending on future results of some of its drugs - while GSK will pay Novartis up to $7.1bn for the vaccine business, excluding its flu vaccine unit.
Meanwhile, the joint venture will be 63.5 per cent owned by GSK, with Novartis owning the rest. GSK said it would give back £4bn of the $7.8bn net cash proceeds of the deal.
"Opportunities to build greater scale and combine high quality assets in vaccines and consumer healthcare are scarce. With this transaction we will substantially strengthen two of our core businesses and create significant new options to increase value for shareholders," GSK boss Sir Andrew Witty said. The deal is set to alter how GSK makes money, adding around £1.3bn to the £26.9bn it makes annually and changing its revenue mix, with 62 per cent of sales coming from pharmaceuticals, 24 per cent from consumer healthcare and 14 per cent from vaccines.
GLAXOSMITHKLINE PLC p 1,660 1,640.00 22 Apr 1,640 1,620 1,600 1,580 1,560 1,540 17 Apr 22Apr 14Apr 15Apr 16 Apr WHAT DOES THE DEAL MEAN FOR GLAXOSMITHKLINE? ANALYST VIEWS SAVVAS NEOPHYTOU PANMURE GORDON MICK COOPER EDISON INVESTMENT RESEARCH GSK has underperformed in recent weeks, impacted mainly by missed upgrading opportunities from the pipeline. This transaction shows management will not sit idly by waiting for the pipeline to mature but will take brave decisions to unlock shareholder value. Managing to get up to seven times prospective revenues for its oncology business is no mean feat.
GSK is becoming more of a diversified healthcare company by strengthening its vaccine and consumer health divisions, following its deal with Novartis. The move away from oncology clearly gives a good return on investment on its current portfolio, but it will be interesting to see how effectively the company can monetise future investment in oncology.