GSK, Novartis announce business sales, form joint venture

GSK will acquire Novartis' vaccines business, while Novartis will acquire GSK's oncology business

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LONDON—GlaxoSmithKline plc (GSK) and Novartis AG have announced a three-part agreement consisting of the sale of select businesses from both companies and the formation of a joint venture. Under the agreement, GSK will acquire Novartis’ global vaccines business (excluding influenza vaccines) for an initial cash consideration of $5.25 billion, with additional potential milestone payments of up to $1.8 billion and ongoing royalties. Novartis will be acquiring GSK’s marketed oncology portfolio, as well as related R&D activities, rights to its AKT inhibitor and commercialization partner rights for future oncology products, for which it will pay an aggregate cash consideration of $16 billion (up to $1.5 billion of which is dependent on the results of the COMBI-d trial).
“This proposed three-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,” Sir Andrew Witty, CEO of GSK, said in a press release. “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.”
Witty added that acquiring 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.” He also noted that the divestment of GSK’s oncology business “provides us with a unique opportunity to crystallize an attractive value for this portfolio and allow these medicines to benefit from Novartis’ global scale in this area.”
GSK expects this transaction to be accretive to core earnings per share from the first year, and is forecasting that the deal will increase its annual revenues by £1.3 billion to £26.9 billion (on a 2013 pro forma basis). The transaction is expected to be complete during the first half of next year.
The joint venture will be formed by combining Novartis’ over-the-counter business with GSK’s consumer business to create a consumer healthcare business with a significant industry footprint. Once complete, Novartis will own 36.5 percent of the joint venture and hold four of the 11 seats on the joint venture’s board of directors. Novartis will also have customary minority rights and exits rights at a predefined, market-based pricing mechanism. Novartis noted in a press release that the joint venture could see roughly $10 billion in annual sales.
“The transactions mark a transformational moment for Novartis. They focus the company on leading businesses with innovation power and global scale. They also improve our financial strength, and are expected to add to our growth rates and margins immediately,” Joseph Jimenez, CEO of Novartis, commented in a statement. “We have also created a world-leading consumer healthcare business in our joint venture with GSK. We believe the divestment of our smaller Vaccines and Animal Health Divisions will enable us to realize immediate value from these businesses for our shareholders, and those divisions will benefit from being part of large, global businesses that are also leaders in their segments. Patients will benefit from even higher levels of innovation that this focus may afford. Looking ahead, this positions Novartis well for future healthcare industry dynamics.”

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