DRUGS giant GlaxoSmithKline has had a spring in its step since upgrading profit forecasts last week. But the shares bounce those numbers presaged is nothing new. Since 2018, GSK stock has leaped 30% on chief Emma Walmsley’s dramatic deal-led restructuring.
With a flurry of takeovers now done, M&A bankers are figuring what might come next. So far, Walmsley has created a vast consumer healthcare business by merging the over-the-counter medicines of Glaxo, Novartis and Pfizer. That side of the business demerges from GSK’s pharmaceuticals arm in 2022.
Until then, cash flow from the consumer division will fund the pharma side to get its next generation of drugs to market. Progress so far has been good, with key trial results for three out of three of its key cancer medicines all having gone well this year.
The niggle is that, post-demerger, the pharma firm will be tiny compared with Pfizer, Merck or Novartis. So, could Glaxo fall prey to one of those giants?
Politically, an overseas bid for such a national champion would be unpalatable, either for a Tory or Labour PM. So, more likely is that GSK does takeovers of its own to bulk up. Last year’s buy of cancer specialist Tesaro has gone well and could encourage more deals. The pharma arm will emerge from the demerger debt-free, so can gear up to fund a war chest.
And what of that giant consumer business? Scale is so obviously beneficial in that world that GSK will surely be a consolidator.
Reckitt could be a takeover option. The two cultures are miles apart (code for: they hate each other), but such obstacles can be overcome. Gains in the combined efficiencies in the supply chain, marketing and sales channels could be compelling.
Other bolt-on acquisitions could follow as it continues to scale up.
Whatever shape the deals come in, it's fair to expect enough to keep bankers in school fees for years to come.
