GlaxoSmithKline To Buy Novartis' Stake in Consumer Health Care JV For $13 Billion

Less than a week after confirming that it has withdrawn its offer for Pfizer Inc.PFE's consumer health care business, GlaxoSmithKline plc (ADR) GSK announced a deal to beef up its presence in the consumer health care space.

What Happened

Novartis AG (ADR) NVS and GlaxoSmithKline announced Tuesday that GSK will buy out Novartis' 36.5-percent stake in the two companies' consumer health care joint venture for $13 billion. The joint venture was set up in 2015 as part of a three-part transaction between the companies.

Following the announcement, GlaxoSmithKline shares reacted with a move to the upside and were up more than 3 percent Tuesday morning. 

The U.K. company said gaining 100-percent ownership in the consumer health care business, with popular brands such as Sensodyne toothpaste, will help capture the  full value of future performance.

The buyout is expected to close this summer. 

Why It's Important

GlaxoSmithKline expects the health care business to deliver sales and earnings growth and hit operating margins in the "mid-20s" by 2022. The deal is expected to be accretive to the company's adjusted earnings in 2018 and thereafter, the company said in the announcement. It will also strengthen cash flow generation, according to GlaxoSmithKline.

The consumer health business netted sales of the U.S. dollar equivalent of about $11 billion in 2017, with sales growing at a three-year CAGR of 4 percent since 2014 and operating margins improving from 11.3 percent in 2015 to 17.7 percent in 2017.

What's Next

To fund the deal, GlaxoSmithKline has opted to initiate a strategic review of its Horlicks brand and other consumer nutrition products, as well as its shareholding in its Indian subsidiary.

The company said it will increasingly focus on the OTC and oral health categories, which fetched it the equivalent of $778.5 million in sales in 2017.

For Novartis, the sale means the divestment of a non-core asset, which will help it to drive shareholder returns and make bolt-on acquisitions, the company's new CEO Vas Narasimhan said in a statement.

Novartis shares were up 0.33 percent at the time of publication Tuesday. 

Related Links:

Regulatory Concern For Celgene's Ozanimod Could Be Big For Arena Pharma, Novartis

The Week Ahead In Biotech: Earnings, PDUFA Dates And More

Photo courtesy of GlaxoSmithKline.