GlaxoSmithKline in Pfizers Sights?

GlaxoSmithKline’s market cap has fallen into the range where Pfizer could make an offer, according to analysts at Berenberg Bank

GlaxoSmithKline’s recent troubles don’t seem to be going away any time soon and this could have detrimental effects on the company as analysts from Berenberg Bank believe that GlaxoSmithKline will be vulnerable to a takeover approach by Pfizer.

Pfizer failed with 4 attempts to takeover British based drugmaker AstraZeneca with the fourth and final offer being nearly £70 billion. Although American company Pfizer could return with a new bid again for AstraZeneca when a six month cooling off period ends in November. But analysts from Berenberg have also raised attention to a potential offer for GlaxoSmithKline as an alternative to AstraZeneca.

With a disappointing set of quarterly results and with warnings over profits being announced, GlaxoSmithKline’s market value now stands at £68 billion which evidently is less than what Pfizer offered in their fourth offer for AstraZeneca.

At this share price level, the US company could probably “stretch” to paying the 45% premium it offered to AstraZeneca with a cash and shares deal, said the analysts.

“Pfizer would need to bid $164 billion (£97 billion) and find $74 billion in cash. This is perhaps a stretch, but not totally unrealistic,” they said.

Pfizer then could use GSK as a way to move its tax base to the UK in a ever popular inversion deal however that wasn’t the main reason why Pfizer were interested in acquiring AstraZeneca.

“A back-of-the-envelope calculation would give a highly accretive deal, particularly if Pfizer could get to GSK’s low 20s tax rate,” said the analysts.

The analysts also noted that GlaxoSmithKline already have an existing collaboration with Pfizer in its HIV medicines unit ViiV and that if the two companies were to merge together they would easily hold the biggest vaccines portfolio in the industry.

Currently though any potential deal with Pfizer could derail GlaxoSmithKline’s £11 billion ass swap with Swiss rival Novartis. Pfizer are are currently looking to expand its oncology offering where as GSK are looking to offload its cancer portfolio. Also the consumer healthcare venture between GlaxoSmithKline and Novartis which is currently being in very early planning stages, would clash with Pfizer’s plans to rid itself off non pharmaceutical assets. Although this isn’t a major problem according to analysts.

“GSK may just be too large for Pfizer to handle, but as a plan B it has some merits,” they concluded.

The note came as GSK’s woes intensified with a credit rating downgrade. Moody’s announced on Friday that a “marked deterioration” in the drug giant’s credit profile led the agency to knock the drug giant’s rating down one notch to A2, from A1.

It blamed currency headwinds and intense pricing pressures on its top-selling lung drug Advair for the downgrade.

Moody’s said it believed GSK could “successfully navigate this period of transition in its respiratory franchise”, following the launch of a number of new inhaler products. But it also warned that “competition is heating up” in the market as rival drug makers launch new lung drugs as well.

The ratings agency also cautioned that GSK’s deal with Novartis created a “material contingent liability”. The Swiss drug giant has a right to sell its 36.5pc share of the consumer healthcare joint venture to GSK after three years, which could cost the British drug company “in excess of £6 billion”.

With GlaxoSmithKline not having a great year in the news as well as on the books it looks like the future is certainly going to very murky however I am unsure whether a takeover from Pfizer is on the cards due to the size of GlaxoSmithKline, although stranger things have happened.

Alex Carson

PiR Resourcing leaders in senior life science resourcing. For more news and information, you can follow us on Twitter and LinkedIn  For all our latest roles in the Life Science sector please click here.

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