- GSK to return 4bn pounds to shareholders after Novartis three-part deal
- Companies to create new consumer business
- Novartis to sell Vaccines business to GSK
- GSK to sell Oncology portfolio to Novartis
- Means 10bn dollar
surplus payment to GSK
GlaxoSmithKline (GSK) has announced a major three-part transaction with Swiss pharmaceuticals peer Novartis which will see shareholders receive a four billion-pound capital return.
The first part of the deal will see GSK and Novartis create a new consumer healthcare business with 2013 pro-forma revenues of £6.5bn. GSK will have majority control with a 63.5% equity stake.
The British group will then acquire Novartis' global vaccines business excluding influenza vaccines for an initial cash consideration of $5.25bn, with subsequent potential milestone payments of up to $1.8bn and ongoing royalties.
Meanwhile, GSK will sell its marketed oncology portfolio to Novartis for an aggregate cash consideration of $16bn.
"This proposed three-part transaction accelerates our strategy to generate sustainable, broadly sourced sales growth and improve long-term earnings," said GSK's Chief Executive Sir Andrew Witty.
"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."
He said that the oncology disposal was a "unique opportunity" to crystallise an attractive value for the portfolio.
The swapping of assets results in some $10bn of surplus payment going towards GSK, or as high as $12bn if an earn-out of the oncology transaction is met, which has allowed GSK to announce that shareholders will receive a £4bn capital return funded by net cash transaction proceeds, expected to be delivered via a B-share scheme.
The deal will be accretive to GSK's core earnings from the first year after completion and its contribution will grow from 2017 as projected cost savings and growth opportunities are delivered.
Brokers were generally positive on the transactions from GSK's and Novartis's point of view.
Neophytou said: "Today's transaction shows management will not sit idly by waiting for the pipeline to mature but will take brave decisions to unlock shareholder value."
Upgrading the stock to 'buy', he said the deal was consistent with management strategy and "strengthens two sub-scale businesses whilst divesting another sub-scale business", which were "all sensible portfolio management steps".
Getting more granular, analysts at Killik said the vaccines acquisition will significantly enhance GSK's portfolio and pipeline, whilst strengthening its manufacturing network and reducing supply costs. It said the new consumer healthcare business will hold category-leading positions and brands in wellness, oral health, nutrition and skin health.
"We believe today's announcement is attractive, and the shares
have responded positively as a result," said Killik. "The transaction will accelerate the group's strategy and substantially strengthens two of its core businesses."