GlaxoSmithKline plc (LON:GSK) is considering breaking-up its businesses, according to a report in the Financial Times at the weekend, following investor pressure for the blue-chip drug maker to spin-off its consumer division.
The newspaper said GSK’s chairman Philip Hampton has been in discussions with the FTSE 100-listed group’s biggest shareholders about the creation of a standalone pharma and vaccines company in the medium term. The move could happen within two or three years, the report added.
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One of the company’s top ten shareholders, whom the FT did not name, acknowledged having conversations with the GSK chairman, adding that shareholders “don’t quite believe in the company.”
A GSK spokesman said the group’s priority is to improve the performance of its pharmaceutical business, especially research and development, reports added.
The company is expected to outline its new approach for the division in the coming week when it reports second-quarter results on Wednesday.
Last year, GSK’s chief executive Emma Walmsley announced a wide-ranging overhaul designed to narrow the focus of drug research and improve returns in the core pharmaceuticals business.
In April, GSK said it was divesting its rare disease gene therapy drugs to private biotech company Orchard Therapeutics.
UBS cautions on dividend cover
In a note to clients regarding the FT report, analysts at UBS commented: “Consumer accounts for c20% of GSK group EBIT and, whilst it is the slower growing part of the business, it tends not to be attributed a consumer-like multiple (in general Consumer assets within pharma companies do not get consumer-like multiples)."
They added: “On paper hence a break-up would seem to make sense, but we caution that the dividend cover as well as the current repositioning of GSK would not allow for this for a few years to come.”
UBS repeated a ‘buy’ rating and 1,600p price target on GSK. In early morning trading, GSK shares were 0.4% higher at 1,555.2p.
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