UK based GSK is all set to buyout Switzerland based Novartis stake in the Consumer Healthcare Joint venture for $13 billion. Formed as part of the three part transaction between GSK and Novartis in 2014, Consumer Healthcare Joint Venture’s 100% ownership by GSK enables GSK shareholders to capture full value of future performance.
According to Emma Walmsley, Chief Executive Officer, GSK:
“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. Most importantly it also removes uncertainty and allows us to plan use of our capital for other priorities, especially pharmaceuticals R&D.”
With the reported sales of £7.8 billion ($10.97 billion) in GSK’s Consumer Healthcare Business which has been growing 4% since 2015 on a 3 year CAGR basis (2015-2017 at 2014 CER) with an overall improvement in operating margins from 11.3% in 2015 to 17.7% in 2017, GSK’s Consumer Healthcare Business in on a upward trajectory. The transaction is expected to be accretive to adjusted earnings in 2018.
Novartis has the right, exercisable from 2 March 2018 to 2 March 2035 to require GSK to purchase its stake (or specified tranches of it) in the Joint Venture under the terms of the original transaction and this put option in both size and possible timing, creates inherent uncertainty for the Group’s capital planning. Therefore the buyout of Novartis’s stake improves GSK ability to plan allocation of capital and clears out uncertainty.
Subject to the approval of GSK shareholders as Novartis is treated as a related party under UK Listing Rules, and the Board intends to unanimously recommend that shareholders vote in favor of the transaction, GSK is strategic review its product, Horlicks, to support the funding of the transaction. GSK also intends to drive increased focus on OTC and Oral Health categories. In 2017, the combined sales of these products were around £550 million($773.65 million), with India being a major market for Horlicks.
Founded in 1715, GSK plc. engages in the creation, discovery, development, manufacture, and marketing of vaccines, over-the-counter medicines, and health-related consumer products worldwide. Headquartered in the UK, GSK operates through four segments: Pharmaceuticals, Pharmaceuticals R&D, Vaccines, and Consumer Healthcare. GSK employs around 98462 employees worldwide.
Headquartered in Switzerland, Novartis manufactures pharmaceutical and consumer healthcare products. Novartis specializes in pharmaceuticals for cardiovascular, respiratory and infectious diseases, oncology, neuroscience, transplantation, dermatology, gastrointestinal and urinary conditions, arthritis, vaccines and diagnostics, vision, and animal health products.