GSK buys Novartis out of joint venture in $13B deal

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GSK buys Novartis out of joint venture in $13B deal

By Michael Johnsen - 03/27/2018
GlaxoSmithKline on Tuesday announced it has reached an agreement with Novartis for the buyout of Novartis’ 36.5% stake in their Consumer Healthcare Joint Venture for $13 billion.

“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," Emma Walmsley, GSK CEO, said. "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.”

GSK is initiating a strategic review of Horlicks and its other consumer healthcare nutrition products to support funding of the transaction, and to drive increased focus on OTC and Oral Health categories. Combined sales of these products were approximately $777.5 million in 2017.

The majority of Horlicks and other nutrition products sales are generated in India, with the Horlicks range widely recognized as a portfolio of premium nutrition products. In India, these products are sold by GlaxoSmithKline Consumer Healthcare, a public company listed on the National Stock Exchange and Bombay Stock Exchange. The strategic review will include an assessment of GSK’s 72.5% shareholding in the company.

The Consumer Healthcare Joint Venture was formed as part of the three-part transaction between GSK and Novartis which was approved by shareholders in 2014. Last year, GSK’s Consumer Healthcare business reported sales of $11 billion. Since 2015, the unit's sales have grown 4% 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.

Under the terms of the original transaction, Novartis had the right require GSK to purchase its stake in the Joint Venture.

With category-leading power brands, increased focus on science-based innovation and improved operational efficiencies, GSK Consumer Healthcare is well positioned to deliver sales growth, operating margin improvements and attractive returns, the company stated. The business expects operating margins to approach ‘mid-20’s’ percentages by 2022 at 2017 CER.

The transaction is subject to approval by GSK shareholders as Novartis is treated as a related party under U.K. Listing Rules, and the GSK board intends to unanimously recommend that shareholders vote in favor of the transaction.


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