22nd Apr 2014 06:52
LONDON (Alliance News) - GlaxoSmithKline PLC said Tuesday it has signed a three-part inter-conditional transaction with Novartis AG which will see it sell off its Oncology portfolio, acquire Novartis' global Vaccines business, and create a dually-offered Consumer Healthcare business.
The transaction is designed to drive sustainable sales growth, improve long-term earnings and deliver increasing returns to shareholders, said Glaxo.
The FTSE 100-listed healthcare giant will acquire Novartis? global Vaccines business (excluding influenza vaccines which Novartis is set to sell off separately) for an initial cash consideration of USD5.25 billion with subsequent potential milestone payments of up to USD1.8 billion and ongoing royalties.
GSK will also divest its marketed Oncology portfolio, related research and development 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 USD16 billion, of which up to USD1.5 billion depends on the results of its COMBI-d trial.
Under the terms of the three-part deal, GSK and Novartis will create a new Consumer Healthcare business with 2013 pro forma revenues of GBP6.5 billion. GSK will have majority control with an equity interest of 63.5%.
Glaxo shareholders will receive GBP4 billion capital return funded by net cash transaction proceeds and expected to be delivered via a B share scheme, said the firm Tuesday.
The deal - which is set to complete during the first half of 2015 - is expected to be accretive to core EPS from the first year, reflecting execution of the intended B share scheme, said Glaxo. Thereafter, it is expected to record growing contributions from 2017 as projected cost savings and new growth opportunities are delivered.
Sir Andrew Witty, Chief Executive Officer, GSK, said ?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," he added.
The firm estimates that the transaction would increase GSK?s annual revenues by GBP1.3 billion to GBP26.9 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%.
The deal is expected to generate new revenue growth in the Vaccines and the new Consumer Healthcare unit, with future revenues set to reflect the recent restructuring and investment by Novartis, said Glaxo. Sales in the new unit will reflect the re-supply of certain products manufactured at Novartis' facility in Lincoln, Nebraska following remediation activities at the site. Production and re-supply of these products is expected to increase and be phased in over the next two years.
Cost savings of GBP1 billion per year are also expected to be achievable by the fifth full-year following closing, said the company.
Glaxo said the acquisition of Novartis' global Vaccines business will improve its position in the market, with demand for vaccination expected to remain at significant levels - GSK estimates the global vaccine market to grow approximately 10% per annum over the next 10 years.
The deal will specifically support Glaxo's portfolio, notably in meningitis, as it includes the addition of Bexsero, a new vaccine for prevention of meningitis B and a further candidate vaccine in late-stage development, MenABCWY.
Of the Oncology business sell-off, GSK said, "this part of the Transaction represents a unique opportunity to crystallise an attractive value for its marketed portfolio and provide Novartis with the opportunity to leverage its global scale in this therapy area and deliver new growth and development opportunities for these products."
The firm added that its research and development in Oncology will continue, with programmes to investigate potential new treatments in areas of cancer immunotherapy, epigenetics, and tumour environment.
Also announced today, Eli Lilly and Co. is set to acquire Novartis Animal Health for around USD5.4 billion in an all-cash transaction that will strengthen and diversify Lilly's own animal health business, Elanco.
When the acquisition is completed, Elanco will be the second-largest animal health company in terms of global revenue, will solidify its number two ranking in the US, and improve its position in Europe and the rest of the world.
GlaxoSmithKline last traded at 1,559 pence per share.
By Alice Attwood; [email protected]; @AliceAtAlliance
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