GlaxoSmithKline PLC (LON:GSK) has agreed to buyout Novartis’s 36.5% stake in their consumer healthcare joint venture for US$13bn in cash.
The news comes just days after GSK bowed out of the race to take over the consumer healthcare unit of Pfizer Inc (NYSE:PFE).
READ: GlaxoSmithKline follows Reckitt Benckiser in bowing out of US$20bn auction for Pfizer consumer division
The deal with Novartis is set to be completed in the second quarter, subject to shareholder approval.
UBS said the valuation of the stake is broadly consistent with the contingent liability on GSK's balance sheet of £8.6bn at the end of December.
"After walking away from bidding for the Pfizer business last Friday for returns and capital allocation priority reasons, we do not see GSK return to the bidding process," it said.
GSK shares jumped 6.5% to 1,372p in London afternoon trading.
GSK reviews Horlicks and India sUBSidiary
GSK is considering selling its Horlicks malted drinks business and its other consumer healthcare nutrition products to help fund the deal. The company said it will kick off a strategic review of the assets.
Last year, the firm announced plans to sell Horlicks in the UK after sluggish sales. It decided to keep the brand in India and southeast Asia, which account for the bulk of its global revenues.
The company’s strategic review will assess its 72.5% stake in India business, GlaxoSmithKline Consumer Healthcare Ltd.
However, GSK said India remains a “priority market” and it will continue to invest in growth opportunities for its OTC and oral health brands such as Sensodyne and Eno.
The outcome of the review is expected by the end of this year and there can be no assurance that it will result in any transaction, it said
GSK says Novartis deal removes uncertainty
GSK expects the deal with Novartis to be accretive to adjusted earnings from 2018 and to strengthen cash flow generation.
“Most importantly it also removes uncertainty and allows us to plan use of our capital for other priorities, especially pharmaceuticals research and development,” said GSK chief executive, Emma Walmsley.
The joint venture was formed in 2015, combining GSK's consumer healthcare business with Novartis's over-the-counter (OTC) division. The venture includes well-known brands such as Panadol headache tablets, muscle gel Voltaren, and Nicotinell nicotine patches.
Under the terms of the joint venture, Novartis had the right to ask GSK to purchase its stake from March of this year. GSK said this put option created uncertainty for its capital planning.
UBS said: "The Novartis put has always been the #2 capital allocation priority for GSK CEO (investment in pharma is priority #1) and we believe all of the above is hence consistent with GSK's prior statement on capital allocation."
Novartis to focus on core businesses
For Novartis, the sale will allow it to focus on the development and growth of its core businesses.
Novartis chief executive Vas Narasimhan said while the joint venture was performing well, it was the right time to sell a non-core asset at an "attractive" price.
Shares in Novartis edged up 0.6% to US$79.678 in US pre-market.