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GSK investors split over break-up calls

February 8, 2016
Life sciences

Shareholders in GlaxoSmith­Kline are at loggerheads over whether the company should bow to activist pressure by splitting up the UK’s biggest drugmaker and overhauling its board.

Neil Woodford, the former head of UK equities at Invesco Perpetual who now runs his own investment management company, has called for GSK to undergo a radical restructuring into four separate companies, rather than one £68bn giant, to release value while the US hedge fund Och-Ziff is urging it to start planning for the departure of chief executive Sir Andrew Witty.

GSK is split into divisions focused on pharmaceuticals, consumer health products, including Aquafresh toothpaste, vaccines and HIV medicines.

Richard Marwood, a fund manager at Axa Investments, a top 20 investor in GSK, said: “If you had a blank piece of paper you would have never designed a drugs company like this.

“It is something we have spoken to [GSK chairman Philip] Hampton about in the past year and he is aware it is a structural issue. He said it is strategically something that needs to be looked at, but they are not close to sorting it.”

Other investors, however, are understood to be against a radical break-up of the company or the appointment of a new chief executive. One top 20 investor said: “This is a supertanker, Andrew Witty’s feet are fully to the fire and we should give the guy a chance.” He argued that there were benefits to GSK’s diversified model because the steady revenues from its consumer business had bolstered the company through its “ slightly more lumpy drug discovery”.

A source close to the company said GSK would delay a split for at least two years while it integrated assets from a complex three-way swap with Novartis announced in 2014. “The deal only closed last year, they will want to have boosted synergies to get a more attractive price should they sell,” he said.

Sir Andrew used better-than-expected annual results last week to dampen talk of a break-up, telling shareholders when asked about the consumer health division: “The chance of us doing something in an accelerated timeframe is extraordinarily low.”
Whether the company is split up is likely to depend on how long Sir Andrew, a GSK veteran who has been its boss since 2008, stays at the helm. Mr Marwood said: “It is getting to crunch point. The strategy does need a bit of something.”

Other investors disagreed that a change of chief executive was the way forward. A top 10 shareholder said: “If he’s fundamentally doing the wrong things, maybe there’s a reason [to change the chief executive] but if things are going slower than expected but are moving in the right direction why should that matter?”

Mr Marwood and other investors have said that GSK should buy out Pfizer and Shionogi of Japan, who hold minority interests in its HIV therapy company, ViiV, and also the consumer health joint venture with Novartis. These put options require GSK to keep billions of cash sitting on its balance sheet and frustrate shareholder payouts. “They are balance sheet pedants”, Mr Marwood said.

By Ashley Armstrong, and Ben Martin

Source: The Telegraph

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