Last year, reported sales of £7.8bn at operating margins 17.7% - Op Profit £1.38 Bn
36.5% of that - £0.504 Bn.
36.5% stake in their consumer healthcare joint venture for $13bn (9.15 Bn GBP).
ie 18 x OPERATING profit.
The business expects operating margins to approach 'mid-20's' percentages by 2022 at 2017 on a constant exchange rate basis. CAGR was 4%. Implies the 36.5% share could yield £0.83 Bn operating profit in 2022.
Good question, games. Struggled to find anything definite that I could understand, but here's a bit.
Non-controlling interest allocation of CHC profits - £344m, but the waters are muddied by:-
"At 31 December 2017, the estimated present value of the potential redemption amount of the Consumer Healthcare Joint Venture put option recognised in Other payables in Current liabilities was £8,606 million (31 December 2016: £7,420 million reported within Other non-current liabilities). The estimated present value of the potential redemption amount of the Pfizer put option related to ViiV Healthcare, also recorded in Other payables in Current liabilities, was £1,304 million (31 December 2016: £1,319 million).
Contingent consideration amounted to £6,172 million at 31 December 2017 (31 December 2016: £5,896 million), of which £5,542 million (31 December 2016: £5,304 million) represented the estimated present value of amounts payable to Shionogi relating to ViiV Healthcare and £584 million (31 December 2016: £545 million) represented the estimated present value of contingent consideration payable to Novartis related to the Vaccines acquisition. A milestone payment of $450 million related to this latter liability was made in January 2018. The liability due to Shionogi included £216 million in respect of preferential dividends. The liability for preferential dividends due to Pfizer at 31 December 2017 was £17 million (31 December 2016: £23 million). An explanation of the accounting for the non-controlling interests in ViiV Healthcare is set out on page 59.
Of the contingent consideration payable (on a post-tax basis) at 31 December 2017, £1,076 million (31 December 2016: £561 million) is expected to be paid within one year. The consideration payable for the acquisition of the Shionogi-ViiV Healthcare joint venture and the Novartis Vaccines business is expected to be paid over a number of years. As a result, the total estimated liabilities are discounted to their present values, on a post-tax basis using post-tax discount rates. The Shionogi-ViiV Healthcare contingent consideration liability is discounted at 8.5% and the Novartis Vaccines contingent consideration liability is discounted partly at 8% and partly at 9%."
Makes sense to me, too. Ok, they were obliged to something with it, but they've taken it all back under control. Do I recall him of fund management fame saying that GSK should have gotten rid of it? Good steady earnings growth with less R&D costs - why not.
Missed the bit about maintaining the divi, but if they can sort out India, that might not be an issue. Horlicks in India! I mean, if you can sell Horlicks in India you can sell anything anywhere. Ice cream to Eskimos?
LONDON (Alliance News) - GlaxoSmithKline PLC said Tuesday it will acquire Novartis's 36.5% stake in their consumer healthcare joint venture for USD13 billion, or around GBP9.2 billion.
The UK listed pharmaceutical giant also said it will initiate a strategic review of Horlicks and other consumer nutrition products to support funding of the stake acquisition. The review will include the company's 72.5% shareholding in Indian subsidiary, GlaxoSmithKline Consumer Healthcare Ltd.
The consumer healthcare joint venture was formed as part of the three-part transaction between Glaxo and Novartis which was approved by shareholders in 2014.
Glaxo said its consumer healthcare business is well positioned to deliver sales growth, operating margin improvements and attractive returns. Last year, Glaxo's consumer healthcare business reported sales of GBP7.8 billion
The stake acquisition is expected to be accretive to Glaxo's adjusted earnings in 2018 and thereafter, and is expected to strengthen operational cash flows.
"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 worlds 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. Most importantly it also removes uncertainty and allows us to plan use of our capital for other priorities, especially pharmaceuticals R&D [research and development]," Glaxo Chief Executive Emma Walmsley said.
The stake acquisition by Glaxo is expected to close in the the second quarter, according to Novartis. Glaxo expects the strategic review to conclude by the end of 2018. Combined sales of nutrition products totaled GBP550 million in 2017.
Novartis to sell stake in consumer healthcare joint venture to GSK for USD13.0 billion to focus on strategic priorities
Novartis International AG / Novartis to sell stake in consumer healthcare joint venture to GSK for USD13.0 billion to focus on strategic priorities . Processed and transmitted by Nasdaq Corporate Solutions. The issuer is solely responsible for the content of this announcement.
Price reflects an attractive value to Novartis
Proceeds to be used according to capital allocation priorities, including bolt-on acquisitions
Sale of JV in a non-core segment in best long-term interests of Novartis shareholders
Completion expected in Q2 2018, subject to necessary approvals
Basel, March 27, 2018 - Novartis announced today that it has entered into an agreement with GlaxoSmithKline plc (GSK) to divest its 36.5 percent stake in its consumer healthcare joint venture (JV) to GSK for USD13.0 billion. The sale will enable Novartis to further focus on the development and growth of its core businesses.
Vas Narasimhan, CEO of Novartis, said: "While our consumer healthcare joint venture with GSK is progressing well, the time is right for Novartis to divest a non-core asset at an attractive price. This will strengthen our ability to allocate capital to grow our core businesses, drive shareholder returns, and execute value creating bolt-on acquisitions as we continue to build the leading medicines company, powered by digital and data."
The joint venture was formed in 2015 as part of Novartis' portfolio transformation, which comprised a three-part inter-conditional transaction with GSK, including the combination of the Novartis Over-the-Counter (OTC) business with the GSK consumer healthcare business into the existing JV.
The consumer healthcare JV investment is accounted for in Novartis' financial reporting using the equity method of accounting, whereby the Company's share of the net income is reported as income from associated companies.
GSK has agreed to pay a cash consideration of USD13.0 billion for Novartis' stake in the consumer healthcare joint venture.
The valuation, which was agreed by both parties, reflects the significant value created by the JV under the guidance of the joint JV Board and management team.
Four of the 11 directors of the joint JV Board are appointed by Novartis. They will step down in connection with the completion of the transaction.
The transaction is subject to GSK shareholder approval. Proceeds in cash are expected to be received once all closing conditions are fulfilled.
"Ms. Walmsley has replaced nearly half of Glaxo's top 125 executives, according to the company. She has reassigned or let go some 400 scientists in its drug-development unit, and another 100 science jobs are still on the line, according to people familiar with the matter. She is also shutting down more than two dozen clinical drug trials, as she narrows the focus of Glaxo's drug-discovery portfolio."
That sounds like a heck of a lot of bathwater being thrown out, hopefully not too many babies in there!
I can't judge whether this change to focused R&D is the right one, there seems plenty of evidence that R&D performance has not yielded the required results and GSK board should be best placed to decide how to fix it. It will take quite some time to see the full effects, although the cost impacts should be visible earlier.
"it is hard to recall another turnaround effort in the industry with the same scale and speed. It "has never been done in any major pharmaceutical company that I am aware of," one industry veteran said.
"Some insiders see the restructuring as a breath of fresh air. Others say the depth of the executive and scientific cull has sparked chaos, and they blame Ms. Walmsley for being too focused on short-term shareholder returns."
Radical restructuring is not without risk, especially in knowledge based organizations. Loss of key people and capability could undermine delivery, lets hope those who feel they are breathing fresh air are the one who can deliver! Even if the strategy is right, it will take careful management of the implementation.
I hold over 5% here (more before the SP slide!) and will continue to do so for now, I hope Ms. Walmsley can make it work.
By Noemie Bisserbe and Joann S. Lublin
LONDON -- Emma Walmsley, the rookie chief executive of GlaxoSmithKline PLC, is giving the 300-year-old British drug giant's ailing research-and-development operations a dose of bitter medicine.
In the roughly one year that the 48-year-old former cosmetics executive has been in place, Ms. Walmsley has replaced nearly half of Glaxo's top 125 executives, according to the company. She has reassigned or let go some 400 scientists in its drug-development unit, and another 100 science jobs are still on the line, according to people familiar with the matter. She is also shutting down more than two dozen clinical drug trials, as she narrows the focus of Glaxo's drug-discovery portfolio.
Outsiders and recruiters say it is hard to recall another turnaround effort in the industry with the same scale and speed. It "has never been done in any major pharmaceutical company that I am aware of," one industry veteran said.
A Glaxo predecessor company introduced the first commercial treatment for HIV in the late 1980s, but more recently the company has lagged behind in research productivity -- the art of squeezing profit out of drug discoveries. Glaxo's so-called annualized economic return to R&D spending -- which measures profits generated as a return on earlier R&D investment, in excess of the cost of capital -- was just 3% from 2007 to 2016, according to an analysis by SSR Health. That put it at No. 13 among the 22 largest U.S.-listed pharmaceutical companies ranked by R&D spending.
"We need to get out of our own way," Ms. Walmsley said in a recent interview. "Bring more agility, courage, accountability, passion and pace."
Some insiders see the restructuring as a breath of fresh air. Others say the depth of the executive and scientific cull has sparked chaos, and they blame Ms. Walmsley for being too focused on short-term shareholder returns.
"Some people find it challenging, others embrace it," said Phil Thomson, Glaxo's president of global affairs.
While Ms. Walmsley's changes may be more dramatic than her peers', they reflect a wider industry trend. After plowing billions of dollars into new businesses aimed at cushioning companies from the boom-and-bust nature of developing new drugs, companies like Pfizer Inc. and Novartis AG also are refocusing on high-margin prescription drugs.
Ms. Walmsley's predecessor, Andrew Witty, spent most of his nine-year tenure developing slower-but-steadier consumer health-care products. Ms. Walmsley, who had come to Glaxo from French cosmetics giant L'Oréal SA, ran that business for more than five years.
Last April, days after taking the reins at Glaxo, Ms. Walmsley summoned the company's top 200 research and development executives to two of its global R&D offices, in Ware, England, and Upper Providence, Pa., according to people who attended the meetings. Management cued up a video featuring half a dozen analysts and investors discussing Glaxo's lackluster R&D.
"It was a hard-hitting video," Mr. Thomson said. "We wanted to show them how the outside world sees us."
In July, Ms. Walmsley announced she would slash the company's drug pipeline and direct 80% of its R&D budget -- which came in at about $6.3 billion in 2017 -- to just a handful of specialties, including respiratory illnesses, HIV, oncology and conditions related to inflammation due to an abnormal immune-system response.
She said she would target annual cost savings of about $1.4 billion by 2020. Glaxo said it planned to close at least nine manufacturing sites.
Ms. Walmsley has made big changes at the top, too. In September, she replaced Abbas Hussain, an eight-year Glaxo veteran who was head of pharmaceuticals and had been a contender for the top job, with a hire from rival AstraZeneca PLC, Luke Miels. Mr. Hussain joined a private-equity firm in October.
She also poached Hal Barron from Alphabet Inc.'s Google. The tech giant had hired him to help run its drug-research
There is a consolidation between abt 1260 and 1370 which isn't a W but is still potentially a base. As and when 1370 is properly penetrated the base is complete and the minimum upside expected would be to 1480 on a repetition of the amplitude of the base formation.
Given that the longterm neckline is at 1455 at least a pause at that level is likely. More resistance is evident at 1530. But it won't be easy with such a big top 1450 to 1725 formed after the sharp fall in November last year. But the quick rebound off the Oct 2015 support level is a hopeful sign that momentum is back in the hands of the buyers.
"... clears the way for the Novartis deal which GSK have wanted all along... Which I predicted sometime ago I might just add... Of course this is clever by seeming to go for this and then pulling back it's doing Emma's standing with the market no harm at all."
Yes, all credit SM. I was more 50/50 on it, partly as I was always very dubious that RB could go for it at all, given the (relative) hole they've got themselves into.
It is a moot point - and we will likely never really know - just how seriously GSK considered it. Of course you "have a look" (in EW's words), and there was nothing to lose by playing along as long as no commitment was demanded - it is instructive, probably, that they (and RB) pulled out at the point where binding bids were required. And now, at the very least, they'll know quite a bit more about a major competitor portfolio in the consumer healthcare business.
So both GSK and RB now play the M&A "discipline" card - but really, for both it's 'virtue of necessity' territory. I seriously doubt, if they both hadn't already been under pressure created (largely) from their own underwhelming performance and/or execution elsewhere, that they both wouldn't be chasing this further, and harder.
And then there's poor old Pfizer, left holding the baby... Perhaps that's what you get for telling the world you've lost interest in an ex-growth business, and then expecting a fancy price for it from the "greater fool". There's a lesson here also for the likes of Nick Train, and the argument that big established brands will always send buyers into a high-multiple feeding frenzy, no matter the underlying financial dynamics.
At least Unilever got it, with their Spreads biz - they kept expectations low for a mature, ex-growth operation, and no-one worried too much when they merely matched them with the final (comparatively modest) price, even in what looked like a highly competitive auction.
My second small piece of good news this week raising the SP on GSK. The first was related, being RB also pulling out of the deal and their share price rising too. Apart from that everything disaster - my SIPP worst performing week for 2 years.
This pretty much secures the dividend heading 2019 onwards.
Guess a trimming still possible, if debt paydown proves challenging.... but fear of a slashing fully assuaged.
When I saw the GSK price well up this morning, thought Walmsey had announced thus.
Carnage just about everywhere else.
Even e.g. UK REITS knocked down.
Global trade War = Deep equity Bear market.
Just hope Trump is mostly playing sops to his electoral base; might backslide somewhat like on the steel/AL tariffs.
Chinese response very restrained...thus far.
GSK update regarding Pfizer Inc. Consumer Healthcare
GlaxoSmithKline plc (LSE/NYSE: GSK) today confirms it has withdrawn from the process relating to Pfizer's Consumer Healthcare business.
Emma Walmsley, Chief Executive Officer, GSK said:
"While we will continue to review opportunities that may accelerate our strategy, they must meet our criteria for returns and not compromise our priorities for capital allocation."
GSK - one of the world's leading research-based pharmaceutical and healthcare companies - is committed to improving the quality of human life by enabling people to do more, feel better and live longer. For further information please visit www.gsk.com.
"Oh dear - GSK can't seriously want to load themselves up with it surely? Maybe they will also pull out in such a nervous market.. Sigh of relief for my investment in RB though."
Time will tell, Games. Could go either way IMHO.
Absent further twists in the story, GSK are now sole remaining bidder in the auction - for a business where they should be able to capture chunky synergies. This is rarely a bad position to be in! But it'd still be a big deal for a company under some pressure, and which has clearly committed its priority to investing elsewhere in the group.
I'd be okay with GSK getting it, via their JV structure, at a reasonable price, ie. no more than the low-end of the public range, and ideally a bit less. But the chance of Pfizer pulling the auction and keeping the biz has obviously gone up - not ideal for them, but they'll know that having only one bidder in an auction is not a position of strength. I also think the hybrid solution previously mooted - Pfizer joining the existing GSK consumer JV - is increasingly interesting as a potential 'win-win' compromise.
RB are making a virtue of a necessity in pulling out - they were (relatively suddenly) on the back foot, given both balance sheet and tarnished reputation. They had no support for doing the deal, as their SP reflected. Hence the curious formal statement which they didn't need to make, having said nothing formally about it before.
Heard part of a piece on the news yesterday that Trump plans to unveil his drug pricing plans shortly. Previously I think that he had stated that he wanted to bring down prices significantly, which clearly wouldnt be good for the likes of GSK.
I have a few and was planning to add some more (given my newly found cash from exiting prefs !) but I think Ill hang on for the moment.
Anybody know more about Trumps plans in this area ?.
"Vectura was down 4.4% on news it, along with partner Hikma Pharmaceuticals, will be required to conduct an additional clinical endpoint study for the development of a generic to GlaxoSmithKline's Advair Diskus."
Below are some comments from Sharecast regarding recent results
"GlaxoSmithKline, reaffirmed its dividend for this 2018 earlier this month, saying that safeguarding shareholder returns was a higher priority than large-scale mergers and acquisitions.
Unveiling her first full-year results since taking over as chief executive, Walmsley said she was "increasingly confident" that GSK's new suite of products would help it deliver "mid- to high single-digit growth" in the years leading to 2020."
This would suggest nothing ras on the takeover front. Emma seems to have her fingers on the pulse.
I found an interesting piece in the NY Times, from back in October... full text copied below. Two interesting takeaways for me:
(1) Using similar (admittedly, broad) assumptions to my own earlier analysis, it suggests a value of $10bn for the business - this was obviously before we started seeing talk of higher prices (ie. $14/15bn, up to $20bn), begging the question of the original source for these higher figures!
(2) The idea that Pfizer could fold the biz into the existing GSK/Novartis JV, becoming a possible third (and minority) partner in the shared business.
IMHO I agree that $10bn (as per Lupo!) looks about the right value, on a stand-alone basis. The likes of GSK etc, with already-substantial Consumer interests, would be able to justify paying more (and Pfizer would expect them to) given substantial synergies in a market which is all about scale, as the article suggests. But obviously, the more you "pay away" these synergies up front, the less reason to do the deal.
But I like the latter idea... bringing Pfizer into the JV structure (with or without buying Novartis out first) would not only spread the risk and minimise the capital commitment, but it would likely pave the way for less of a premium in the price, with Pfizer retaining a share of upside from both achieved synergies and possible future growth. No idea how much this might appeal to Pfizer, I am sure they'd prefer a clean exit at a good price - but it might be the best deal they can get...
"Painkillers and hemorrhoid cream: These are either the recipe for a terrible night in, or a potentially good corporate deal. Pfizer, the $215 billion United States drug maker, has assigned investment banks to look into a spin off or sale of its consumer-goods division, which makes Advil and Preparation H. GlaxoSmithKlines new boss, Emma Walmsley, would be well placed to offer them a home.
Over-the-counter products are a tiny sideline for Pfizer, accounting for just 6.4 percent of its revenue last year. Ian Read, Pfizers chief executive, therefore loses little from putting the business on the block. While these goods might share manufacturing and shipping processes with prescription medicines, the unique nature of cooking up, testing and distributing drugs to patients suggests there is not much reason to keep them together. Germany-based Merck is considering a similar split.
Of course, some are less dismissive including Ms. Walmsley. She took over as chief executive in April after having run the consumer-goods joint venture Glaxo co-owns with Switzerland-based Novartis. Ms. Walmsley has pledged to focus on Glaxos drugs, like its H.I.V. and asthma meds, rather than her old division, which makes just 15 percent of group operating profit. But as she will know, consumer goods are a game of scale something rivals like Sanofi, Reckitt Benckiser and Johnson & Johnson also covet.
A neat solution would be to fold Pfizers consumer business into the Glaxo-Novartis joint venture. Valued at 15 times operating profit roughly the 10-year average for the consumer-staples sector the business could be worth $10 billion. That assumes Pfizers consumer operating margin is roughly the same 20 percent that Glaxo is targeting. Since Glaxo now values its venture with Novartis at $27 billion, Pfizer could argue for a stake somewhere south of 30 percent. One day, the enlarged company might make for a more lucrative spin off or sale than Pfizer could muster today.
Timing matters. Mr. Read said he will make a decision sometime in 2018. Ideally, Glaxo would buy Novartis out before doing any other deals, since it would otherwise have to pay the Swiss company for its share of any synergies that came from adding Pfizer. Besides, Ms. Walmsley has only been in the job for six months. Nonetheless, she could do worse than toss an offer over Pfizers counter."
I'm no chartist, although I might become one . From a simple chartist's point of view, the 3-year chart looks like an old-fashioned (like me) 'W' formation. Don't any long-term holder compare GSK to the ftse 100 over the same period - it would only make you sad.
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