GSK announces major 3-part transaction with Novartis to drive sustainable sales growth, improve long-term earnings and deliver increasing returns to shareholders
GlaxoSmithKline plc today announces a major 3-part inter-conditional transaction with Novartis AG involving its Consumer Healthcare, Vaccines and Oncology businesses (the ?Transaction?). In summary:
GSK ? one of the world?s leading research-based pharmaceutical and healthcare companies ? is committed to improving the quality of human life by enabling people to do more, feel better and live longer.? For further information please visit www.gsk.com
Information regarding forward-looking statements
This announcement includes statements that are, or may be deemed to be, ?forward-looking statements?. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ?believes?, ?estimates?, ?plans?, ?projects?, ?anticipates?, ?expects?, ?intends?, ?may?, ?will?, or ?should? or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this announcement and include, but are not limited to, statements regarding GSK?s intentions, beliefs or current expectations concerning, among other things, GSK?s business, results of operations, financial position, prospects, growth, strategies and the industry in which it operates as well as those of the Novartis businesses that are the subject of the transaction. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of GSK?s operations and financial position, and the development of the markets and the industry in which GSK operates, may differ materially from those described in, or suggested by, the forward-looking statements contained in this announcement. The same applies in respect of the Novartis Businesses that are the subject of the transaction. In addition, even if the results of operations, financial position and the development of the markets and the industry in which GSK operates are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, changes in regulation, currency fluctuations, changes in its business strategy, political and economic uncertainty and other factors discussed in this announcement.
Forward-looking statements may, and often do, differ materially from actual results. Any forward-looking statements in this announcement speak only as of their respective dates, reflect GSK?s current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to GSK?s operations, results of operations and growth strategy. You should specifically consider the factors identified in this document, in addition to the risk factors that may affect GSK?s operations which are described under ?Risk Factors? in the Company?s 2013 Annual Report on Form 20-F, which could cause actual results to differ before making any decision in relation to the Transaction as well as those of the Novartis businesses that are the subject of the transaction. Subject to the requirements of the FCA, the London Stock Exchange, the Listing Rules and the Disclosure and Transparency Rules (and/or any regulatory requirements) or applicable law, GSK explicitly disclaims any obligation or undertaking publicly to release the result of any revisions to any forward-looking statements in this announcement that may occur due to any change in GSK?s expectations or to reflect events or circumstances after the date of this announcement.
No statement in this document is intended as a profit forecast or profit estimate and no statement in this document should be interpreted to mean that the earnings per share of GSK, as altered by the Transaction will necessarily match or exceed the historical or published earnings per share of GSK or the relevant entities which form the basis for the Transaction
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This summary should be read in conjunction with the full text of this announcement.
GlaxoSmithKline plc - Proposed 3-part transaction with Novartis
Introduction
GSK today announces that it has reached agreement with Novartis on a major 3-part transaction involving its Consumer Healthcare and Oncology businesses and Novartis? Vaccines and OTC (over-the-counter) Consumer Healthcare businesses.
The Transaction with Novartis comprises three inter-conditional components, consisting of:
(i)???????????? the creation of a Consumer Healthcare joint venture (JV), combining GSK?s Consumer Healthcare business and Novartis? OTC Consumer Healthcare business (the ?Consumer Healthcare Joint Venture?);
(ii)??????????? the acquisition by GSK of Novartis? global Vaccines Business, including its meningitis portfolio and antigen manufacturing facilities, but excluding influenza vaccines (the ?Vaccines Acquisition?); and
(i)???????????? the divestment of GSK?s marketed Oncology portfolio, related R&D activities and rights to its AKT inhibitor and the grant of commercialisation partner rights for future oncology products to Novartis (the ?Oncology Disposal?).
Summary of principal terms and conditions of the Transaction
This section provides information about the material terms and conditions of the Transaction, its constituent parts and the agreements entered into today by GSK and Novartis in that regard. Payment terms have been agreed in US dollars ($).
Consumer Healthcare Joint Venture
GSK and Novartis have today entered into contribution agreements under which, upon completion of the Transaction, GSK and Novartis will create the Consumer Healthcare Joint Venture to hold GSK?s Consumer Healthcare business and Novartis? OTC Consumer Healthcare business. In consideration of these contributions, GSK will have a controlling 63.5% equity interest in the joint venture company, with Novartis? interest being 36.5%.
The JV will operate under the GSK Consumer Healthcare name and would operate in all territories where GSK and Novartis have a presence in those businesses, with the exception of India and Nigeria where GSK will continue to hold directly its interests in its listed subsidiaries.
The JV will be consolidated in GSK?s financial statements and will have no external debt.
GSK will assume control of Novartis? OTC manufacturing network. This includes Novartis? facility in Lincoln, Nebraska. Remedial actions to address the manufacturing issues identified at the Nebraska site have been underway since 2012 and re-supply of certain products started in November 2013. At present it is not possible to determine when the site will resume full operations. Production and re-supply of products is expected to increase and be phased over the next 2 years.
The joint venture is the subject of a shareholders? agreement between GSK and Novartis, under which GSK will have 7 directors and Novartis 4 directors on the board of the joint venture company. GSK will have control of the joint venture company through the board, while Novartis will enjoy customary minority shareholder protections.
Novartis has the right to exit its investment in the joint venture company via a put option to GSK at an expert-determined market valuation.? The put option is exercisable in certain windows in the period from the third to the twentieth anniversary of closing of the Transaction. The put option may be exercised either in respect of Novartis? entire holding in the joint venture company at any given point or in instalments of 7.5% (with a final instalment of 14%).?? If the put option is exercised in instalments, a waiting period of 18 months applies between option exercises.
GSK and Novartis are subject to restrictions regarding the transfer of their respective interests in the joint venture company to third parties.? As an exception to these restrictions, Novartis will be free to sell its shares to a third party (subject to GSK?s right of first refusal) following expiry of the put option arrangements described above.? In addition, GSK is free to sell its shares to a third party following the third anniversary of closing of the Transaction, subject to Novartis having a right of first refusal and a tag right entitling it to require its shares to be sold as part of any sale by GSK.
Vaccines Acquisition
GSK and Novartis have today entered into a share and business sale agreement under which, upon completion of the Transaction, Novartis? global Vaccines Business (including relevant corporate entities but excluding influenza vaccines) will be sold to GSK.
The consideration payable by GSK under this agreement comprises:
(i)???????????? $5.25 billion payable at closing (which is subject to customary adjustment for levels of cash, debt and working capital);
(ii)??????????? the following pipeline-related milestone payments:
(a)? $450 million upon FDA regulatory approval for Novartis? MenABCWY vaccine product;
(b)? $450 million in the event that Bexsero achieves an agreed annual net sales threshold;
(c)? $450 million upon achievement of an agreed milestone relating to ACIP regulatory recommendations in respect of either Novartis? MenABCWY vaccine product or Bexsero; and
(d)?? $450 million upon achievement of an agreed milestone relating to ACIP regulatory recommendations in respect of Novartis? Group B streptococcus vaccine (?GBS?); and
(iii)?????????? annual royalty payments at the rate of 10% on certain net sales of the above products.
Oncology Disposal
GSK and Novartis have today entered into a sale agreement under which GSK has agreed to sell, upon completion of the Transaction, the rights to GSK?s currently marketed oncology portfolio, related R&D activities and its AKT inhibitor currently in development as well as to grant Novartis preferred partner rights for future commercialisation of GSK oncology products for an aggregate cash consideration of $16 billion. Up to $1.5 billion of this cash consideration depends on the results of the COMBI-d trial, a Phase III study evaluating the safety and efficacy of the combination of Tafinlar (BRAF) and Mekinist (MEK) versus BRAF monotherapy.
COMBI-d is a Phase III trial studying the combination of BRAF/MEK in patients with unresectable or metastatic melanoma, as compared to BRAF monotherapy. The trial reported positive progression free survival (primary endpoint) data in January 2014, and is being continued to evaluate its secondary endpoint of overall survival. The data on overall survival is estimated to read out in late 2014 or early 2015.
GSK will enter into a manufacturing supply agreement for the transferred products with Novartis for an initial period of 5 years.
The cash consideration is subject to customary adjustment for levels of working capital.
GSK will retain its early-stage R&D pipeline and discovery capability, as well as certain product rights outside of oncology for Arzerra.
The preferred partner rights granted by GSK to Novartis are for a period of 12.5 years from closing of the Transaction and relate to co-development and commercialisation opportunities relating to GSK oncology development products.
Inter-conditionality and Long-stop date
The Consumer Healthcare Joint Venture, the Vaccines Acquisition and the Oncology Disposal are inter-conditional.? As such, none of the Transaction?s constituent parts will close unless the conditions to the other parts are satisfied or, where applicable, waived.? The various conditions to the Transaction and its constituent parts must be satisfied (or, where applicable, waived) within 18 months (or such other date as GSK and Novartis may agree).? If that does not occur, the Transaction will terminate.
Conditions to completion
The Transaction constitutes a Class 1 transaction for the purposes of the FCA?s Listing Rules and is therefore conditional upon the approval of GSK?s shareholders at a General Meeting. Until such time as the Transaction is approved by GSK?s shareholders, the Transaction is also conditional upon the Novartis Board not withdrawing approval of the Transaction that it has announced today.
GSK has agreed that its Board will recommend that shareholders vote in favour of the resolution approving the Transaction at the General Meeting (the ?GSK Recommendation?).? The Novartis Board has today approved the Transaction as being in the best interests of Novartis and its shareholders as a whole (the ?Novartis Approval?).? The GSK Recommendation and the Novartis Approval are both subject to provisions that allow them to be withdrawn on account of fiduciary duties.
In addition, the Transaction and its constituent parts are subject to certain other conditions, including the following material conditions:
????????? the receipt of anti-trust clearances by GSK and Novartis in respect of the constituent parts of the Transaction, including EU merger clearance and expiry of the HSR waiting periods;
????????? no material adverse event in relation to the businesses of either GSK or Novartis which are part of the Transaction; and
????????? certain other regulatory matters and approvals and certain third party consents.
GSK and Novartis will also conduct consultations with staff, works councils and trade unions and other employee representatives as appropriate and in accordance with applicable requi
- GSK and Novartis will create a new world-leading Consumer Healthcare business with 2013 pro forma revenues of ?6.5 billion. GSK will have majority control with an equity interest of 63.5%
- GSK will acquire Novartis? global Vaccines business (excluding influenza vaccines) for an initial cash consideration of $5.25 billion with subsequent potential milestone payments of up to $1.8 billion and ongoing royalties
- GSK will divest its marketed Oncology portfolio, related R&D activities and rights to its AKT inhibitor and also grant of commercialisation partner rights for future oncology products to Novartis for an aggregate cash consideration of $16 billion (of which up to $1.5 billion depends on the results of the COMBI-d trial)
- GSK shareholders to receive ?4 billion capital return funded by net cash transaction proceeds and expected to be delivered via a B share scheme
- Transaction expected to be accretive to core EPS from first year, reflecting execution of intended B share scheme, and thereafter with growing contribution from 2017 as projected cost savings and new growth opportunities are delivered
- Transaction is expected to complete during the first half of 2015 subject to approvals
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