GSK To Buyout Novartis’ Stake In Consumer Healthcare JV For $13 Bln; Stock Up

Shares of GlaxoSmithKline plc (GSK,GSK.L) were gaining around 6 percent in the morning trading in London after the British drug major announced Tuesday that it has reached an agreement to buyout Swiss drug maker Novartis’ (NVS) 36.5% stake in their Consumer Healthcare Joint Venture for $13 billion or about 9.2 billion pounds.

In its statement, Novartis said the sale will enable it to further focus on the development and growth of its core businesses. Novartis’ four directors in the 11-member joint JV Board will step down in connection with the sale.

GSK further said it is initiating a strategic review of Horlicks and its other consumer healthcare nutrition products to support funding of the transaction, and to drive increased focus on OTC and Oral Health categories. Combined sales of these products were approximately 550 million pounds in 2017.

The Consumer Healthcare Joint Venture was formed as part of the three-part transaction between GSK and Novartis which was approved by shareholders in 2014.

Under the terms of the original deal, Novartis has the right, exercisable from March 2, 2018 to March 2, 2035 to require GSK to purchase its stake in the Joint Venture. This put option, in both size and possible timing, creates inherent uncertainty for the Group’s capital planning.

GSK noted that the new agreement to buy-out Novartis’ stake removes this uncertainty and improves the company’s ability to plan allocation of capital to its other priorities.

GSK expects the transaction to be accretive to adjusted earnings in 2018 and thereafter, and is expected to strengthen operational cash flows.

Last year, GSK’s Consumer Healthcare business reported sales of 7.8 billion pounds and since 2015 sales have grown 4% on a 3 year CAGR basis with an overall improvement in operating margins from 11.3% in 2015 to 17.7% in 2017. GSK said the business is well positioned to deliver sales growth, operating margin improvements and attractive returns. The business expects operating margins to approach ‘mid-20’s’ percentages by 2022 at 2017 CER.

Regarding Horlicks and other nutrition products, GSK noted that the majority of sales are generated in India, where these products are sold by GlaxoSmithKline Consumer Healthcare Ltd. GSK said the strategic review will include an assessment of GSK’s 72.5% shareholding in the company.

GSK expects the outcome of the strategic review to be concluded around the end of 2018. There can be no assurance that the review process will result in any transaction.

Emma Walmsley, Chief Executive Officer, GSK said, “The proposed transaction addresses one of our key capital allocation priorities and will allow GSK shareholders to capture the full value of one of the world’s leading Consumer Healthcare businesses. For the Group, the transaction is expected to benefit adjusted earnings and cash flows, helping us accelerate efforts to improve performance.”

GSK shares were gaining around 6.2 percent at 1,368.60 pence in London, and 4.3 percent at $39.02 in the pre-market activity on the NYSE.

Novartis shares were gaining around 2.2 percent at 76.06 Swiss francs.

by RTTNews Staff Writer

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