Another week, another rumor about the target on GlaxoSmithKline’s back. This time, U.K. traders were talking up a different potential takeover–not by Pfizer, but by Johnson & Johnson or Roche.
As the Daily Mail reports, dealers were speculating about a 1900 pence-per-share bid from either Big Pharma company, which would value GSK at more than £92 billion ($143 billion). The company’s shares closed at 1351 pence Monday.
And therein lies the root of the deal talk: GSK shares are way, way down. In mid-April the stock was trading at 1642 pence. While today’s prices aren’t as low as GSK’s nadir in January–1327 pence–it’s a far cry from the 1700-plus of two years ago.
“People are hovering because of the vulnerability of the group at this price,” one of the Mail’s market sources said late Monday.
They’re also hovering because pharma M&A is still going gangbusters, even after a spate of large deals that included Actavis’ buyout of branded drugmaker Allergan and Glaxo’s own asset swap with Novartis.
The logic for a J&J or Roche bid? Perhaps not as strong as the case for a Pfizer buyout. True, J&J could add Glaxo’s joint venture with Novartis on consumer health to its own sizable OTC-drug and consumer-products business. But J&J isn’t into vaccines, and its prescription drug business lacks a respiratory segment, which is GSK’s major pharma concern these days. Maybe J&J would like to be in those fields? Hmm. Maybe.
As for Roche, the Swiss drugmaker has never shown much inclination for diversifying into consumer health–or into anything much besides diagnostics, for that matter. While its crosstown rival Novartis moved into eye care, over-the-counter drugs, vaccines and more, Roche stuck to its prescription drug focus; even its diagnostics unit feeds into drug development, what with biomarker R&D and companion diagnostic tests for its targeted treatments. Roche’s big buy over the last few years was Genentech–about as focused as Roche could get, given that it owned a big chunk of the company already. Since then, it has inked one biotech deal after another, including its $8.3 billion deal for InterMune last year.
Pfizer, on the other hand, has vaccines. It has consumer health operations that it says it would like to build up. At least one analyst–Gregg Gilbert at Deutsche Bank–has run the numbers on a Pfizer-GSK combo and come up with some earnings benefits. And that was at an assumed price of 1924 pence per share–higher than the current speculative price.
But there are plenty of reasons to discount the idea of a Pfizer buyout, too, not least that the U.S. company got burned big-time last year when it tried to go after GSK’s fellow British-based drugmaker AstraZeneca. Plus, as analysts have pointed out, a smaller buy such as Shire or Perrigo might be a better fit
For GSK shareholders, a megamerger may just be wishful thinking. CEO Andrew Witty’s plans for slow, if steady, advancement in low-margin businesses aren’t exactly a prescription for short-term stock growth.
By Tracy Staton