News, Culture & Society

ALEX BRUMMER: Glaxo boss must send the private equity ghouls packing

As the former boss of the Glaxosmithkline consumer healthcare division, Emma Walmsley has never been in any doubt that it is a crown jewel buried within the pharmaceuticals and vaccine champion.

Long before activists Elliott Partners, and more recently minnow Bluebell, stepped up their agitation at GSK, the chief executive set herself the goal of releasing the value by doing the splits in 2022.

It has been a tricky balancing act because the reliable earnings from the owner of such brands as Sensodyne, Panadol and Tums has helped support R&D in pharma and vaccines as well as sustain the dividends.

GlaxoSmithKline boss Emma Walmsley (pictured) has long planned to spin off the firm’s consumer healthcare division

This, at a time, when GSK’s scientific chief Hal Barron is seeking to bring new medicines to fruition. The pandemic illustrated that the distinction between vaccine and oral treatments is increasingly blurred.

The hidden value of the consumer healthcare, a business with a global turnover of £10billion, was never in dispute.

One of the big questions for Walmsley and her advisers was whether to float it off to existing investors or sell. 

The preference of long shareholders is a split, which has tax advantages. A trade sale also is a possibility with fast moving consumer goods firms including Unilever and Nestle touted as buyers as they have diversified into the health sector. 

There has always been the possibility that private equity, looking for ever-bigger targets, would be in the wings, stirred into action by Elliott’s machinations.

Confidence is so high that IMF warnings of surging inflation, higher interest rates and a world awash in debt seems no obstacle to ambition. 

Bloomberg reports that among the potential predators are Advent, CVC Partners and the new look ‘Barbarians at the Gate’ themselves, KKR.

The proposed price tag of £40billion would elevate it to the top of the public-to-private buyout list if it came to fruition. 

Indeed, that might just be a starting point. Those of us who believe in the future of the UK’s healthcare and pharma enterprises, key sectors for the UK, would fear the impact of a private equity offer.

Among other things it could leave core pharma and vaccines vulnerable to one of the Covid vaccine-empowered US giants, Pfizer, Moderna or Johnson & Johnson.

Robust chairman Jonathan Symonds, now personally under fire from dissident Bluebell, must hold his nerve.

Unscrupulous activists and private equity ghouls must be seen off the battlefield.

Mud Hut

The shares of tech firms are often volatile in their first year on the public markets. Amazon dropped after it first floated at $18-a-share and now trades at around $3,250!

Nevertheless, the speed of the decline in The Hut Group (THG) shares has been truly spectacular, tumbling 58 per cent in the last 25-days. 

What is disturbing is that the latest 35 per cent descent came within hours of founder-chairman Matt Moulding emerging from a capital markets teach-in.

His main task was to explain why he was opting to float off THG’s technology arm Ingenuity. 

The aim, he explained, was to secure the support of Softbank and its clients, and gain access to new investors. 

In this attempt to mollify, he singularly failed. There is much about the governance of THG to be concerned about. 

This ranges from the ‘golden’ share, which gives Moulding a veto over deals, to inter-company property arrangements. All of this has been known about since the float last year. 

The run on the company’s shares came after a warning from the City firm The Analyst that Ingenuity and the whole group was overvalued. 

The report sparked aggressive activity by four short-sellers who were again active in latest trading. The London Stock Exchange should take a look.

Moulding normally is ebullient about the prospects for his company. He has plainly been shaken. He sought to reassure investors, including his employees, that this was short-term volatility. 

In spite of the slide in shares, the company remains highly cash generative and has access to bank facilities. That should provide some comfort to shareholders fearful of a deeper crisis.

Chinese teaser

Kristalina Georgieva lives on at the IMF, in spite of being placed on probation by the US Treasury Secretary Janet Yellen.

Yet some things at the World Bank and IMF don’t change. First question to chief economist Gita Gopinath at the online press conference on the World Economic Outlook came from the Chinese media. There’s a surprise.

Read more at DailyMail.co.uk