GlaxoSmithKline plc today announces a major 3-part inter-conditional transaction with Novartis AG involving its Consumer Healthcare, Vaccines and Oncology businesses (the “Transaction”). In summary:
> GSK and Novartis will create a new world-leading Consumer Healthcare business with 2013 pro forma revenues of £6.5 billion. GSK will have majority control with an equity interest of 63.5%
> GSK will acquire Novartis’ global Vaccines business (excluding influenza vaccines) for an initial cash consideration of $5.25 billion with subsequent potential milestone payments of up to $1.8 billion and ongoing royalties
> GSK will divest its marketed Oncology portfolio, related R&D activities and rights to its AKT inhibitor and also grant of commercialisation partner rights for future oncology products to Novartis for an aggregate cash consideration of $16 billion (of which up to $1.5 billion depends on the results of the COMBI-d trial)
> GSK shareholders to receive £4 billion capital return funded by net cash transaction proceeds and expected to be delivered via a B share scheme
> Transaction expected to be accretive to core EPS from first year, reflecting execution of intended B share scheme, and thereafter with growing contribution from 2017 as projected cost savings and new growth opportunities are delivered
> Transaction is expected to complete during the first half of 2015 subject to approvals
Sir Andrew Witty, Chief Executive Officer, GSK said: “This proposed 3-part transaction accelerates our strategy to generate sustainable, broadly sourced sales growth and improve long-term earnings.
“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. “The Novartis OTC portfolio is highly complementary to GSK’s and has many well-known, widely recommended brands such as Voltaren, Excedrin, Otrivin, and Theraflu.
Together, we will create the world’s premier OTC business with clear opportunities to accelerate revenue growth. “The acquisition of Novartis’ Vaccines business will significantly enhance the breadth of our vaccines portfolio and pipeline, notably in meningitis, with the addition of Bexsero, an exciting new vaccine for prevention of meningitis B. The acquisition will also strengthen our manufacturing network and reduce supply costs.
“The third part of this transaction would see divestment of our Oncology portfolio to Novartis. Over the last six years we have made excellent progress to develop a series of innovative medicines. This transaction provides us with a unique opportunity to crystallise an attractive value for this portfolio and allow these medicines to benefit from Novartis’ global scale in this area.
In financial terms, this transaction significantly exceeds our return criteria and delivers accretion to core earnings per share in year one and then with a growing contribution over time, particularly in 2017, as growth opportunities and projected cost savings are delivered.
“We also expect to return £4 billion to shareholders following completion of this transaction, whilst maintaining a strong capital base and our commitment to increasing dividends.
“Finally, and very importantly, this transaction strengthens GSK’s offering to patients and consumers. We will expand our portfolio to both help treat illness and prevent disease, and we will broaden our scope to improve human health with the acquired R&D and innovation expertise.”
Strategic highlights Balanced set of core businesses and strengthened R&D The proposed Transaction would increase GSK’s annual revenues by £1.3 billion to £26.9 billion (on a 2013 pro forma basis) and fundamentally re-shape GSK’s revenue base. These revenues would be split across Pharmaceuticals 62%, Consumer Healthcare 24% and Vaccines 14%.
Following completion, around 70% of GSK’s revenues would be focussed around four key franchises: Respiratory, HIV (ViiV Healthcare), Vaccines and Consumer Healthcare. All of these franchises operate in growing markets with new and market-leading brands and products manufactured in protected technologies.
Of the remaining revenue base, approximately 14% of sales would reside in GSK’s Established Products Portfolio (EPP). GSK is currently reviewing this portfolio to ensure the Group evaluates all options to maximise its value.
As a result of this transaction, GSK’s late-stage development pipeline would be further strengthened with the addition of 4 new candidate vaccines from Novartis. In total, GSK would have around 45 NMEs in Phase II/III clinical development. In Consumer Healthcare, both GSK and Novartis have strong track-records of brand innovation and creating scientifically differentiated products with ~15% of combined sales generated from innovation launched in recent years.
Creating a new world-leading Consumer Healthcare business Following completion of the transaction, GSK will be a global leader in Consumer Healthcare with revenues of £6.5 billion, on a 2013 pro forma basis. The new business will hold category leading positions and brands in Wellness, Oral health, Nutrition and Skin health, combining OTC and FMCG capabilities and expertise.
In Wellness, the new combination’s £3.4 billion complementary portfolio will create the world’s largest OTC business with the leading position in more than 35 countries around the world.
The combination is geographically well-matched. Novartis’ portfolio has had relatively limited exposure to high growth emerging markets and this presents multiple new growth opportunities for several major brands and innovations, notably Voltaren, Excedrin and Otrivin.
Similarly, GSK’s brands would benefit from exposure to Novartis’ highly successful CIS, Central and Eastern European business.
The combination also creates a more competitive business. With leading positions in most of the categories in which it operates, the combination will have excellent customer insight and ability to offer retailers better shopper experiences. The combination will also have significant mass market, pharmacy and expert selling capabilities with sales personnel throughout the world. The business will also have access to world-leading science capabilities and to new Rx/Cx switch opportunities from both parent companies.
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