Glaxo to Buy Novartis Consumer-Venture Stake for $13 Billion

• March 27 2018
• James Paton

GlaxoSmithKline Plc agreed to buy out Novartis AG’s stake in their consumer-health joint venture for $13 billion, days after abandoning its pursuit of a similar unit put on the block by Pfizer Inc.

GlaxoSmithKline Plc agreed to buy out Novartis AG’s stake in their consumer-health joint venture for $13 billion, days after abandoning its pursuit of a similar unit put on the block by Pfizer Inc.

The transaction gives Glaxo full control of a business that sells Theraflu cold medicine and Panadol pain relievers while arming Novartis with more firepower for its pharmaceutical operations and acquisitions. It’s the first big strategic move for new chief executive officers at two of Europe’s largest drug companies.

Glaxo CEO Emma Walmsley, who took over last year, has emphasized the benefit of having the pharmaceutical, vaccine and consumer businesses under one umbrella, partly due to the drug industry’s volatility. Her counterpart at Novartis, Vas Narasimhan, who rose to the top spot last month, said the over-the-counter business is no longer central to the Swiss company’s strategy.

Glaxo shares rose as much as 2.8 percent early Tuesday in London, while Novartis rose as much as 2 percent in Zurich.
The consumer health sector has experienced pressure on prices as drugstores and other retailers vie to get shoppers. Glaxo’s investors balked last year when Walmsley mentioned interest in the Pfizer unit, fearing that it might endanger the British drugmaker’s dividend.

Novartis had the right, starting this month, to require Glaxo to purchase its stake in the venture. The new agreement removes uncertainty surrounding that option, Glaxo said Tuesday.

The consumer business expects operating margins to improve and approach “mid-20s” percentages by 2022, Glaxo said.

Bolt-On Acquisitions

The sale of the 36.5 percent stake in the venture, which was formed in 2015, should close in the second quarter, Basel, Switzerland-based Novartis said Tuesday in a statement. The sale will also strengthen Novartis’s ability to drive shareholder returns and make bolt-on acquisitions, Narasimhan said in the statement.

“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,” Narasimhan said.

Narasimhan is focusing on finding breakthrough drugs for cancer and other diseases. Novartis reiterated in January that a decision on whether to spin off the Alcon eye-care division probably won’t come before the first half of 2019.

Glaxo is starting a review of its Horlicks unit and other consumer-health nutrition products to help fund the transaction and increase focus on the over-the-counter and oral-health categories. The company expects to conclude that process around the end of 2018.

Glaxo pulled out of the contest for Pfizer’s consumer-health unit last week in a development that leaves the U.S. drugmaker with dwindling options to dispose of the business, which is valued at as much as $20 billion.

One factor in Glaxo’s decision not to pay the price Pfizer wanted was a potential transaction to buy out the Novartis holding, analysts at Bloomberg Intelligence wrote last week. Glaxo had said it would be interested in acquiring the stake if Novartis exercised its option to sell.