Elliott Calls for Board Changes at GlaxoSmithKline Ahead of Consumer-Healthcare Spinoff -- Update
01 July 2021 - 7:50PM
Dow Jones News
--Activist investor Elliott has called on GlaxoSmithKline to
appoint new directors
--Elliott also urged the drugmaker to consider selling its
consumer-healthcare business
--In its first public comments since building a stake in the
company, Elliott criticized GlaxoSmithKline's underperformance
By Adria Calatayud
Activist investor Elliott Management Corp. has called on
GlaxoSmithKline PLC to assess its board and management ahead of a
long-planned separation of its consumer-healthcare business, and to
consider a sale of the unit.
The investor turned up the pressure on GlaxoSmithKline a week
after the U.K. pharmaceutical company outlined its future plans in
an attempt to convince investors that Chief Executive Officer Emma
Walmsley's turnaround efforts will pay off.
In a letter published Thursday, Elliot criticized
GlaxoSmithKline's "poor record of execution and value creation." In
Elliott's first public intervention over GlaxoSmithKline since it
built a stake in the FTSE 100 company, the investor said the
group's combined businesses should be worth around 45% more than
GlaxoSmithKline's current valuation.
Elliott urged the company's board to appoint nonexecutive
directors with biopharma and consumer-healthcare expertise prior to
the separation and to run robust processes for selecting the best
executive leadership for the two businesses, considering both
internal and external candidates.
Ms. Walmsley, who became CEO in 2017, has driven more investment
into research as well as the separation of the consumer-healthcare
business.
"Elliott is not advocating a specific outcome but is arguing for
a robust process, because it is critical that the board assure
current and future shareholders that the new leadership of both
companies was selected through a credible process that conforms to
corporate governance best practices," the investor said. Existing
management should remain in place until a decision is made on new
leadership, Elliott said.
A GlaxoSmithKline spokesperson said the issues identified by
Elliott in its letter aren't new, and that the company's
transformation program has been designed to address those legacy
issues and more.
"We believe our shareholders are supportive of this strategy,
and that they are focused on GSK executing on it without
distraction or delay," the spokesperson said.
Elliott didn't disclose the size of its shareholding in
GlaxoSmithKline, but said it has built a "significant position" in
the company.
The investor said GlaxoSmithKline should incentivize stronger
performance and greater ambition, improve profitability while
investing more in research-and-development, display openness to
value-maximizing pathways and preserve the nimbleness of its
vaccines and pharma operations. It also said GlaxoSmithKline's
vaccines and pharma operations shouldn't be fully integrated, as
they are largely separate in their manufacturing processes and
commercialization.
As part of these considerations, Elliott said GlaxoSmithKline
should remain open to diverting from its base-case plan and
evaluate a sale of its consumer-healthcare business, which
generates nearly one third of the company's revenue. This would
allow the company to accelerate R&D investment, pay down debt
and return remaining proceeds to shareholders, the company
said.
"Any strategic opportunity for the sale of [consumer healthcare]
should be diligently pursued and accompanied by a clear plan for
how GSK will use the proceeds," the investor said.
Last week, the company said the separation of the
consumer-healthcare business would take place in mid-2022 through a
demerger of at least 80% of its 68% holding in the business to
shareholders. GlaxoSmithKline said it would retain up to a fifth of
its holding in the new consumer-healthcare company--which is
expected to be listed London Stock Exchange--and receive a special
dividend of up to 8 billion pounds ($11.06 billion).
The British drugmaker also pledged last week to accelerate
growth in sales and adjusted operating profit over the next five
years, supported by new vaccines and specialty medicines.
Shares in GlaxoSmithKline at 0923 GMT were up 0.5% at 1,427
pence.
Write to Adria Calatayud at adria.calatayud@dowjones.com
(END) Dow Jones Newswires
July 01, 2021 05:41 ET (09:41 GMT)
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