Published on : Mar 28, 2018
Many would have opined that GlaxoSmithKline plc. (GSK) pulling out of the auction to buy the consumer healthcare business of the American pharmaceutical Pfizer few days ago meant it was diluting its focus on consumer domain. But the recent buyout by the British drugmaker proved otherwise. GSK has announced to buy from Novartis its stake in their consumer health joint venture-amounting to 36.5 per cent-for an amount of US$13 billion. The buyout would confer on GSK complete control of the business unit, engaged in selling a variety of consumer products, notable of which are Sensodyne toothpaste, the painkiller Panadol, and Nicotinell patches. The deal is a decisive for both the companies: Novartis would focus more on its medicine business uncluttering its portfolio mix while GSK will bolster its presence in consumer health segment.
Selling its Stake to make Room for Efficient Capital Allocation for Core Business for Novartis
Not many pharmaceutical giants are known to pursue business in consumer care products given the unclear returns these bring compared to the lucrative business of prescription drugs. The intense price competition from e-commerce sellers also dilutes the profitability. But the Swiss pharmaceutical giant since it got chief executive in March last year was eyeing the stake as the key priority for an efficient capital allocation. The interests for the buyout was already expressed by the CEO before she would lead the company to enter into any large-scale acquisitions.
On the whole, both the companies witnessed a marked rise in their share prices post the decision to step out of the joint venture.
Reviewing its Stake in Consumer Nutrition Products by Swiss Drugmaker Could Lead to more Industry Shake-up
The Brentford-headquartered pharmaceutical giant also announced that it was prepared to make an elaborate assessment of variety of consumer nutrition products, including Horlicks, opening speculations of reshuffling of its portfolio. In addition, this may also mean that GSK is reviewing its stake in India-listed GlaxoSmithKline Consumer Healthcare.
GSK’s CEO believed that the deal will put all of its consumer revenues in-house and will augur well for cash flows, bolstering its adjusted earnings. On the other hand, Novartis contends the divestment of its non-core asset at an attractive price will largely help fuel it organic growth and engage in bolt-on acquisitions.