Friday, June 15, 2007

GSK - Consumer Healthcare Division sell off?

GlaxoSmithKline is facing rising pressure to sell its £10 billion consumer healthcare division, which includes big brands such as Ribena and Lucozade.

A fund manager for one of GSK’s largest shareholders, with a holding of more than 1 per cent, told The Times: “I would support a sale. Prices paid for these types of businesses at the moment are huge, so it is a good time to sell.” He had discussed the issue “many times” with GSK management.

Another investor said a sale would be “welcome” because shareholders had grown frustrated by an underperforming stock price.

As well as Ribena, GSK, Britain’s largest drugs company, makes over-the-counter medicines such as Panadol and Nicorette, and Aquafresh toothpaste. Sales for the 2006 financial year stood at £3.1 billion.

Peter Cartwright, analyst at Evolution Securities, said: “Glaxo’s share price has gone nowhere for five years and investors are getting fed up.” He estimated that a sale, allowing GSK to focus on its core prescription medicine and vaccine businesses, could fetch £9.3 billion to £12.4 billion.

GSK shares have slipped 10 per cent since May amid safety fears over its diabetes drug Avandia and are at their lowest levels since early 2005.

A third shareholder said GSK was “wide open” to receive a letter similar to that sent to Vodafone last week by a hedge fund calling for greater returns to investors. “Unlike Vodafone, Glaxo’s share price is on its backside and they’d have more difficulty defending themselves,” the shareholder said.

Insider's view: It could all come down to "alli" and its performance in the US.

If early sales reports are correct and lots of people suffer "treatment effects" the bottom could fall out of GSK's market!


Pharmalyst said...

Based on Day one sales, Alli may do well and then the pressure on GSK to sell off will increase given the higher valuation

insider said...

Let's see.

I suspect GSK are shitting themselves that they might not have said enough about the "treatment effects" and this might now come back to bite them.