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GSK and Novartis Share Prices Rise on News of £9.2 Billion Sale of Consumer Business

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Those investing online in the shares of pharma giants GSK and Novartis will be buoyed by the companies’ share prices rising by 4.6% and 2.35% respectively in morning trading today. The jumps come on news the companies have completed the sale of Novartis’s consumer business to peer GSK. Novartis’s share price had dropped from a January 26th high of 87.74 CHF to 74.4 CHF yesterday before today’s jump to 76 CHF. The deal for Novartis’s 36.5% stake in the two companies’ joint venture is worth £9.2 billion to the Swiss company. GSK’s (GlaxoSmithKline) share price also dropped from 15.69p on January 26th but is back up to 15.6p today.

The move is being considered by market observers as a strong indication of the future strategy of both companies and, judging by the respective share price jumps, a positive one. The joint venture being acquired by GSK manufactures consumer goods including the toothpaste brand Sensodyne and Panadol painkillers. Novartis is now under the guidance of new Chief Executive Officer Vas Narasimhan and the deal marks a quick indication that he intends to bring the focus of the group back to its core pharmaceuticals business. GSK, on the other hand, strengthens its consumer brands portfolio only days after the London-listed company withdrew from the $20 billion auction for American peer Pfizer’s consumer brands unit.

GSK’s own Chief Executive Emma Walmsley is also still in the process of reshaping the company under her watch having taken the position just under a year ago. There may also be rebalancing within GSK’s consumer brands portfolio as well as acquisitions. Horlicks, the malt drink mixture and other consumer nutrition brands were announced as facing the start of ‘strategic review’. There may be sales to balance the cost of the Novartis investment.

GSK is not, however, entirely shifting its focus away from pharma to consumer healthcare brands. Ms Walmsley stated that the completion of the Novartis acquisition removed uncertainty and “allows us to plan use of our capital for other priorities, especially pharmaceuticals R&D”.

Meanwhile, Novartis plans to reinvest the cash Mr Narasimhan believes represents ‘attractive value’ for a ‘non-core asset’ in pharma ‘powered by digital and data’. Novartis has a reputation as a progressive company in the harnessing of new Meditech and big data.

The market’s reaction indicates shareholders believe the deal represents a win-win result for both companies. However, Jefferies analysts Ian Hilliker has been quoted in the FT as saying Novartis has secured a ‘strong price’ for the unit, whose share in which was valued at £8.6 billion in GSK’s most recently published accounts.

The deal joins a trend of big pharmaceuticals companies refocusing on core businesses. Novartis also holds a 6% stake in Swiss pharma giant Roche, valued at around $14 billion. There is speculation that Mr Narasimhan’s next move could be to offload that asset.

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Paul

The author Paul