GSK, which retreated from the bidding war for the Pfizer consumer healthcare business, will now be able to concentrate on its preferences such as pharma research, which will require capital allocation. The deal will also benefit GSK’s cash flows and non-GAAP profit.
As a result of this deal, Novartis’ four directors will leave the JV Board, which has 11 members in total
In order to finance this deal, GSK is looking at options to sell its Horlicks brand along with its other nutrition products and will soon start a strategic review of this business. This review process might not expect to result in a transaction. Horlicks enjoys strong sales in India and the sale of Glaxo’s stake in its Indian unit could provide some benefits.
This transaction, which needs the approval of GSK shareholders, will also give Novartis opportunities to allocate capital to more priority businesses and also flexibility to focus on other acquisition options. While GSK stock rose 2.5%, Novartis fell slightly when the market closed today.
Whether this deal has stopped Glaxo from taking over the Pfizer consumer healthcare business, which would come at a hefty price of up to $20 billion, or whether it has actually given it the financial flexibility to pursue the same remains to be seen. However, at present, with Novartis, Glaxo appears to have made the right move.