TIDMGSK
RNS Number : 1915F
GlaxoSmithKline PLC
22 April 2014
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN
PART, IN OR INTO ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A
VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION
Issued: Tuesday 22 April 2014, London UK - LSE Announcement
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 (LSE/NYSE:GSK) 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 and Novartis will create a new world-leading Consumer
Healthcare business with 2013 pro forma revenues of GBP6.5 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 GBP4 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
Sir Andrew Witty, Chief Executive Officer, GSK said:
"This proposed 3-part transaction accelerates our strategy to
generate sustainable, broadly sourced sales growth and improve
long-term earnings.
"Opportunities to build greater scale and combine high quality
assets in Vaccines and Consumer Healthcare are scarce. With this
transaction we will substantially strengthen two of our core
businesses and create significant new options to increase value for
shareholders.
"The Novartis OTC portfolio is highly complementary to GSK's and
has many well-known, widely recommended brands such as Voltaren,
Excedrin, Otrivin, and Theraflu. Together, we will create the
world's premier OTC business with clear opportunities to accelerate
revenue growth.
"The acquisition of Novartis' Vaccines business will
significantly enhance the breadth of our vaccines portfolio and
pipeline, notably in meningitis, with the addition of Bexsero, an
exciting new vaccine for prevention of meningitis B. The
acquisition will also strengthen our manufacturing network and
reduce supply costs.
"The third part of this transaction would see divestment of our
Oncology portfolio to Novartis. Over the last six years we have
made excellent progress to develop a series of innovative
medicines. This transaction provides us with a unique opportunity
to crystallise an attractive value for this portfolio and allow
these medicines to benefit from Novartis' global scale in this
area.
In financial terms, this transaction significantly exceeds our
return criteria and delivers accretion to core earnings per share
in year one and then with a growing contribution over time,
particularly in 2017, as growth opportunities and projected cost
savings are delivered.
"We also expect to return GBP4 billion to shareholders following
completion of this transaction, whilst maintaining a strong capital
base and our commitment to increasing dividends.
"Finally, and very importantly, this transaction strengthens
GSK's offering to patients and consumers. We will expand our
portfolio to both help treat illness and prevent disease, and we
will broaden our scope to improve human health with the acquired
R&D and innovation expertise."
Strategic highlights
Balanced set of core businesses and strengthened R&D
The proposed Transaction would increase GSK's annual revenues by
GBP1.3 billion to GBP26.9 billion (on a 2013 pro forma basis) and
fundamentally re-shape GSK's revenue base. These revenues would be
split across Pharmaceuticals 62%, Consumer Healthcare 24% and
Vaccines 14%.
Following completion, around 70% of GSK's revenues would be
focussed around four key franchises: Respiratory, HIV (ViiV
Healthcare), Vaccines and Consumer Healthcare. All of these
franchises operate in growing markets with new and market-leading
brands and products manufactured in protected technologies.
Of the remaining revenue base, approximately 14% of sales would
reside in GSK's Established Products Portfolio (EPP). GSK is
currently reviewing this portfolio to ensure the Group evaluates
all options to maximise its value.
As a result of this transaction, GSK's late-stage development
pipeline would be further strengthened with the addition of 4 new
candidate vaccines from Novartis. In total, GSK would have around
45 NMEs in Phase II/III clinical development. In Consumer
Healthcare, both GSK and Novartis have strong track-records of
brand innovation and creating scientifically differentiated
products with 15% of combined sales generated from innovation
launched in recent years.
Creating a new world-leading Consumer Healthcare business
Following completion of the transaction, GSK will be a global
leader in Consumer Healthcare with revenues of GBP6.5 billion, on a
2013 pro forma basis. The new business will hold category leading
positions and brands in Wellness, Oral health, Nutrition and Skin
health, combining OTC and FMCG capabilities and expertise.
In Wellness, the new combination's GBP3.4 billion complementary
portfolio will create the world's largest OTC business with the
leading position in more than 35 countries around the world.
The combination is geographically well-matched. Novartis'
portfolio has had relatively limited exposure to high growth
emerging markets and this presents multiple new growth
opportunities for several major brands and innovations, notably
Voltaren, Excedrin and Otrivin. Similarly, GSK's brands would
benefit from exposure to Novartis' highly successful CIS, Central
and Eastern European business.
The combination also creates a more competitive business. With
leading positions in most of the categories in which it operates,
the combination will have excellent customer insight and ability to
offer retailers better shopper experiences. The combination will
also have significant mass market, pharmacy and expert selling
capabilities with sales personnel throughout the world. The
business will also have access to world-leading science
capabilities and to new Rx/Cx switch opportunities from both parent
companies.
Emma Walmsley has been appointed as Chief Executive Officer
Designate of the new business and will be a member of its Board.
Sir Andrew Witty will be Chairman of the Board. The Board will
comprise directors from both GSK and Novartis.
Strengthening global leadership in Vaccines
The acquisition of Novartis' global Vaccines business (excluding
influenza vaccines) further improves GSK's position as the world's
leading global vaccines supplier. Demand for vaccination remains
significant with the global vaccine market projected to grow
approximately 10% per annum over the next 10 years.
The transaction will strengthen the breadth of GSK's portfolio,
notably in meningitis, including the addition of Bexsero, a new
vaccine for prevention of meningitis B and a further candidate
vaccine in late-stage development, MenABCWY.
This portfolio expansion will be of benefit to GSK in all
markets and notably in the USA, where Novartis has a strong track
record of delivery. GSK's significant presence in emerging and
developing markets will also provide new opportunities for
introduction and growth of Novartis' vaccines.
GSK and Novartis' Vaccines R&D organisations are highly
complementary, bringing together respective expertise in virology,
bacterial infection and different adjuvant platforms. The new
business would have more than 20 different vaccines in development,
including assets to prevent hospital and maternal infections and
diseases prevalent in developing countries such as malaria and
tuberculosis.
The acquisition is expected to strengthen GSK's manufacturing
network and increase overall capacity, notably with the addition of
Novartis' secondary packaging and supply facilities in Rosia, Italy
and Marburg, Germany. GSK would also acquire new manufacturing
sites in India and China. In addition, the integration of the
supply of a number of key antigens, currently provided to GSK by
Novartis, will provide immediate improvements and enhance the
future flexibility of the business, particularly in paediatric
vaccines.
Realising value for Oncology
GSK has agreed to divest its marketed Oncology portfolio,
related R&D activities and rights to its AKT inhibitor and also
grant commercialisation partner rights for future oncology products
to Novartis for an aggregate cash consideration of $16 billion. Up
to $1.5 billion of this amount 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.
For GSK, this part of the Transaction represents a unique
opportunity to crystallise an attractive value for its marketed
portfolio and provide Novartis with the opportunity to leverage its
global scale in this therapy area and deliver new growth and
development opportunities for these products.
GSK's R&D in oncology will continue with programmes to
investigate potential new treatments in areas of cancer
immunotherapy, epigenetics, and tumour environment.
Financial implications
Sales and earnings benefits
The proposed Transaction significantly exceeds GSK's returns
criteria and the company expects to realise benefits to sales and
earnings as a result of it. The Transaction would increase overall
GSK revenues by GBP1.3 billion to GBP26.9 billion, on a 2013 pro
forma basis.
The Transaction is expected to be accretive to core earnings per
share from the first year, reflecting the execution of the intended
B share scheme, and is expected to make a growing contribution to
earnings thereafter, especially from 2017, as the delivery of cost
savings, new product launches and re-introduction of Novartis' OTC
products accelerates. GSK's operating margins would reflect changes
to GSK's revenue mix which result from the Transaction.
New revenue growth opportunities are expected in both Vaccines
and Consumer Healthcare as a result of the Transaction and future
revenues would also reflect the benefits from recent restructuring
and investment by Novartis. In Consumer Healthcare, sales would
reflect the re-supply of certain products manufactured at Novartis'
facility in Lincoln, Nebraska following remediation activities at
the site. Production and re-supply of these products is expected to
increase and be phased in over the next 2 years.
Cost savings
GSK estimates that total annual cost savings of GBP1 billion
could be achievable by the fifth full year following closing. The
delivery of these potential savings is expected to be phased with
approximately 50% delivered by year three and the full amount by
year five. GSK intends to reinvest approximately 20% of cost
savings to support innovation and expected new product launches
across the Group, wherever returns are most attractive.
Total costs to deliver these savings are estimated to be GBP2
billion, split approximately evenly between cash and non-cash
charges.
Contributions to the total cost savings are estimated to be
approximately 40% from Consumer Healthcare, 40% from Vaccines and
20% from savings associated with the divestment of GSK's Oncology
portfolio. These estimates are subject to further detailed
implementation planning post closing.
Potential cost savings would be generated from reductions in
selling and administrative costs, removal of infrastructure
overlaps and reduced third party contracting as well as through
improvements in manufacturing costs. The new GSK businesses would
also expect to benefit from new economies of scale and earn greater
returns from leveraging sales, distribution and purchasing
opportunities across its broader global platform.
The companies will conduct consultations on cost savings
proposals with staff, works councils, trade unions and other
employee representatives in line with local practice and in
accordance with applicable employment legislation.
Shareholder information
Approvals
The Transaction constitutes a Class 1 transaction for the
purposes of the FCA's Listing Rules and therefore is conditional
upon the approval of GSK's shareholders at a General Meeting which
is expected to be held in the fourth quarter of 2014. The
Transaction is also conditional upon other matters, including
receiving certain anti-trust approvals.Completion of the
Transaction is anticipated to occur during the first half of
2015.
Capital return
GSK plans to use net after tax cash proceeds of $7.8 billion to
fund a capital return of GBP4 billion to shareholders following
completion of the transaction. This return is expected to be
implemented through a B share scheme in 2015, subject to approvals.
Specific details related to the execution of the B share scheme
will be sent to shareholders in due course.
Following implementation of the B share scheme, GSK would not
make any further share repurchases in 2015 but will review the
potential for future share buy backs from 2016 in line with its
usual annual cycle and subject to its current return and rating
criteria.
V A Whyte
Company Secretary
22 April 2014
Teleconferences and Presentation
A media teleconference will be held today at 7.30am BST:
UK Free Phone: 0800 783 0906
US Free Phone: 866 804 8688
US Toll: 718 354 1175
International Free Phone: 01296 480 100
Access Numbers:
http://www.btconferencing.com/globalaccess/?bid=54_attended
Confirmation Code: 452 996
Analysts/investors teleconferences will be held today at 10.30am
and 3.00pm BST:
UK Free Phone: 0800 783 0906
US Free Phone: 866 804 8688
US Toll: 718 354 1175
International Free Phone: 01296 480 100
Access Numbers:
http://www.btconferencing.com/globalaccess/?bid=54_attended
Confirmation Code: 401 617 81
A presentation for analysts and investors is available on GSK's
website: www.gsk.com
GSK enquiries:
UK Media enquiries: David Mawdsley +44 (0) 20 8047 (London)
5502
Simon Steel +44 (0) 20 8047 (London)
5502
David Daley +44 (0) 20 8047 (London)
5502
Catherine Hartley +44 (0) 20 8047 (London)
5502
Sarah Spencer +44 (0) 20 8047 (London)
5502
US Media enquiries: Stephen Rea +1 215 751 4394 (Philadelphia)
Melinda Stubbee +1 919 483 2510 (North Carolina)
Mary Anne Rhyne +1 919 483 0492 (North Carolina)
Sarah Alspach +1 202 715 1048 (Washington)
Jennifer Armstrong +1 215 751 5664 (Philadelphia)
Analyst/Investor Ziba Shamsi +44 (0) 20 8047 (London)
enquiries: 5543
Kirsty Collins +44 (0) 20 8047 (London)
(SRI & CG) 5534
Tom Curry + 1 215 751 5419 (Philadelphia)
Gary Davies +44 (0) 20 8047 (London)
5503
James Dodwell +44 (0) 20 8047 (London)
2406
Jeff McLaughlin +1 215 751 7002 (Philadelphia)
Lucy Singah +44 (0) 20 8047 (London)
2248
Advisor enquiries:
Lazard David Gluckman +1 212 632 1397
Andrew Dickinson +44 20 7187 2000
Richard Shaw
Zaoui & Co Yoel Zaoui +44 20 7290 5580
Michael Zaoui
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
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 requirements and
legislation.
Exclusivity and termination fees
GSK and Novartis have agreed exclusivity and non-solicit
arrangements which apply until the earlier of completion or
termination of the Transaction. Under these arrangements, GSK and
Novartis have agreed, inter alia, that they, members of their
respective groups and their respective representatives shall not
enter into any agreement, discussion or process with any third
party in relation to the assets which form part of the Transaction.
In addition to these provisions, in the event that GSK or Novartis
receives any proposal or offer relating to such assets, it is,
during the exclusivity period, obliged to notify the other party
with details of the proposal or offer.
GSK has agreed to pay Novartis a termination fee of $900 million
by way of compensation:
(i) (subject to limited exceptions) in the event that: the
General Meeting is not held within 18 months; the Shareholder
Resolution is voted down at the General Meeting; or the GSK
Directors adversely change, withdraw or qualify the GSK
Recommendation and the Shareholder Resolution is not then passed
within eight weeks; or
(ii) in certain specified circumstances where anti-trust
clearance is not obtained for the Vaccines Acquisition; or
(iii) in certain specified circumstances where anti-trust
clearance is not obtained for the creation of the Consumer
Healthcare Joint Venture as a result of GSK's non-compliance with
agreed co-operation undertakings between it and Novartis.
Novartis has agreed to pay GSK a termination fee of $900 million
by way of compensation:
(i) in circumstances where the Novartis Board adversely changes,
withdraws or qualifies the Novartis Approval prior to the General
Meeting (which, action as described in "Conditions to Completion"
above, would cause a condition to the Transaction not to be
satisfied); or
(ii) in certain specified circumstances where anti-trust
clearance is not obtained for the Oncology Disposal; or
(iii) in certain specified circumstances where anti-trust
clearance is not obtained for the creation of the Consumer
Healthcare Joint Venture as a result of Novartis' non-compliance
with agreed co-operation undertakings between it and GSK.
Other terms
GSK and Novartis have, under the agreements relating to the
Transaction and its constituent parts, given customary
representations, warranties, covenants and indemnities to each
other, including undertakings regarding achieving satisfaction of
the conditions to which the Transaction and its constituent parts
are subject as well as regarding the conduct of their respective
businesses pending completion.
GSK and Novartis have each provided undertakings, on customary
terms and for agreed duration, not to compete with the business of
the Consumer Healthcare Joint Venture. In addition, GSK has given a
non-compete undertaking, on customary terms and for agreed
duration, in respect of the Oncology portfolio to be sold to
Novartis, with Novartis giving a similar undertaking in respect of
the Vaccines business to be sold to GSK.
The Transaction excludes the Dutch and French businesses where
there is a local works council. In those jurisdictions, GSK and
Novartis have today received irrevocable options to require the
other party or the Consumer Healthcare Joint Venture to acquire
such businesses subject to completion of the consultation process
with the applicable works councils. A period of exclusivity has
been agreed by GSK and Novartis in respect of these businesses.
Summary terms of option arrangements in respect of Novartis'
influenza vaccines business
GSK understands that Novartis has initiated a separate sale
process in respect of its influenza vaccines business. Whilst
Novartis' influenza vaccines business is therefore excluded from
the inter-conditional Transaction, GSK and Novartis have agreed a
future option arrangement in respect of that business.
Under this arrangement, Novartis will have the right during an
18 month period (beginning no later than 18 months time or, in
certain agreed circumstances, from 9 months time) to require GSK to
acquire Novartis' entire influenza vaccines business for
$250million (or certain parts thereof at pro rata consideration)
(the "Put Option"). GSK will receive a fee of $5 million in
consideration of the grant of the Put Option. Any acquisition by
GSK under the Put Option would be conditional on, inter alia,
applicable anti-trust approvals. In the event that the Put Option
is exercised but the sale pursuant to it cannot close, GSK has
agreed that it will nevertheless pay up to $250 million to Novartis
in certain specified circumstances by way of compensation for the
failed option exercise. The exact amount of the compensation
payment depends on which assets were to be sold under the Put
Option.
This option arrangement, which is conditional on approval of the
GSK Shareholder Resolution, would lapse in the event that the
separate 3-part Transaction does not close.
Expected timetable to completion
A circular setting out further details on the Transaction,
including the resolution seeking approval, is expected to be sent
to GSK shareholders in the third quarter of 2014. Subject to the
timing of receipt of anti-trust and regulatory clearances, and to
the completion of necessary employee consultation procedures, GSK
expects the General Meeting to be convened in the fourth quarter of
2014, with completion of the Transaction anticipated to occur
during the first half of 2015.
Board Recommendation
GSK's Board consider the terms of the Transaction and the Put
Option to be fair and reasonable. GSK's Board intends unanimously
to recommend that shareholders vote in favour of the Shareholder
Resolution to be proposed at the General Meeting.
The Board has received financial advice from Lazard and Zaoui
& Co. In providing advice to GSK's Board, Lazard and Zaoui
& Co. have each relied upon the GSK's directors' commercial
assessments of the Transaction and the Put Option.
Advisers
Lazard and Zaoui & Co are acting as joint financial advisers
in connection with the Transaction. In addition, GSK has received
financial advice from Citi and Arkle Associates. Lazard and Citi
are acting as joint sponsors for the Transaction.
Sources of information and bases of calculation
a. Unless otherwise stated, the financial information relating
to GSK is extracted from the audited consolidated financial
statements of GSK for the financial year to which it relates,
prepared in accordance with IFRS.
b. Unless otherwise stated, the financial information relating
to Novartis is extracted from the audited consolidated financial
statements of Novartis for the financial year to which it relates,
prepared in accordance with IFRS.
c. Unless otherwise stated, exchange rates of GBP1 = US$1.68
have been used, being the exchange rates at 11.00 a.m. in London on
17 April 2014.
Appendix
Information on the assets and businesses subject to the
Transaction
The Novartis global Vaccines Business is the business of
research, development, manufacture, sales, marketing and
commercialisation of vaccines for human use (and ingredients used
in such vaccines) as currently conducted by Novartis through
various divisions (but excluding influenza vaccines). The principal
assets include: Novartis' meningitis portfolios; its DT antigen
bulk manufacturing facilities at Marburg, and its manufacturing and
R&D sites in Italy (Rosia and Siena); and pipeline vaccines,
including its group B streptococcus vaccine and MenABCWY
combination vaccine. The business employs approximately 5,000
people.
The Novartis OTC Consumer Healthcare business comprises
Novartis' Wellness, Nutrition and Skin Care businesses together
with its OTC pipeline and related manufacturing network. The
principal brands are: Benefiber, Excedrin, Fensitil, Gas-X,
Lamisil, Maalox, Nicotinell, Otrivin, Prevacid, Sinecod, Theraflu,
Triaminic, and Voltaren. The business employs approximately 6,100
people.
GSK's marketed Oncology portfolio comprises the rights to GSK's
currently marketed oncology assets (Votrient, Arzerra,
Promacta/Revolade, Tykerb/Tyverb, Tafinlar, Mekinist, Arranon,
Hycamtin, Zofran, Argatroban and Alkeran). Also being sold to
Novartis are the rights to GSK's AKT inhibitor, currently in
development. This business employs approximately 2,200 people.
Novartis' influenza vaccines business, which is the subject of
the Put Option, comprises Novartis' business of research,
development, manufacture, sales, marketing and commercialisation of
influenza vaccines for human use (and ingredients used in such
vaccines), including its cell-based business and egg-based business
and its manufacturing sites at Speke in the UK and Holly Springs in
the US.
Attributable profits for 2011-2013
The table below sets out the attributable operating profits for
2011-2013 on a core and total basis and gross assets at historical
cost at 31 December 2013 which has been prepared, in accordance
with each party's IFRS accounting policies, and are unaudited. All
of Novartis' financial information has been translated from US$ to
GBP Sterling using a convenience translation rate of
$1.68:GBP1.
Attributable profits
2011 2012 2013
Gross
assets
GBP billion Core Total Core Total Core Total at 31.12.13
Novartis OTC
Consumer Healthcare
business 0.4 0.3 0.1 - 0.2 0.1 1.3
Novartis global
Vaccines Business
(excluding influenza) (0.1) (0.3) (0.2) (0.2) (0.1) (0.2) 1.7
Novartis influenza
Vaccines business - - (0.1) (0.1) (0.1) (0.1) 0.7
GSK Oncology
business - - 0.1 0.1 0.2 0.2 0.9
Definitions
"ACIP" means the Advisory Committee on Immunization Practices
to the US Center for Disease Control and Prevention;
"Arkle Associates" means Arkle Associates LLP;
"Citi" means Citigroup Global Markets Limited;
"Consumer means the joint venture company operating under
Healthcare the name GSK Consumer Healthcare and combining GSK's
Joint Venture" Consumer Healthcare business and Novartis' over-the-counter
Consumer Healthcare business, in which GSK will
have a 63.5% equity interest and Novartis a 36.5%
equity interest;
"Core results means results that exclude the following items from
- GSK" total results: amortisation and impairment of intangible
assets (excluding computer software) and goodwill;
major restructuring costs, including those costs
following material acquisitions; legal charges (net
of insurance recoveries) and expenses on the settlement
of litigation and government investigations, and
acquisition accounting adjustments relating to the
consolidation of material acquisitions, disposals
of associates, products and businesses, other operating
income other than royalty income and other items,
together with the tax effects of all of these items;
"Core results means results that exclude the following items from
- Novartis" total results: amortisation of intangible assets,
impairment charges, expenses relating to the integration
of acquisitions as well as other income and expense
items that are, or are expected to accumulate within
the year to be, over a $25 million threshold that
management deems exceptional;
"Disclosure means the rules and regulations made by the FCA
and Transparency in its capacity as the UK Listing Authority under
Rules" Part 6 of the Financial Services and Markets Act
2000, and contained in the UK Listing Authority's
publication of the same name;
"FCA" means the Financial Conduct Authority;
"FDA" means the US Food and Drug Administration;
"General Meeting" means the general meeting of GSK's shareholders
at which the Shareholder Resolution will be voted
on;
"Group" means GSK, its subsidiaries and its subsidiary undertakings;
"HSR" means the US Hart-Scott-Rodino Antitrust Improvements
Act of 1976;
"IFRS" means the International Financial Reporting Standards,
published by the International Accounting Standards
Board and as amended from time to time;
"Lazard" means Lazard Frères & Co. LLC and Lazard &
Co., Limited;
"Listing Rules" means the rules and regulations made by the FCA
in its capacity as the UK Listing Authority under
Part 6 of the Financial Services and Markets Act
2000, and contained in the UK Listing Authority's
publication of the same name;
"Shareholder means an ordinary resolution of GSK's shareholders
Resolution" to be voted on at the General Meeting, the purpose
of which is to obtain approval for the Transaction
and the Put Option as required by the Listing Rules;
"Transaction" means the transaction between GSK and Novartis comprising
the following three inter-conditional components:
(i) the Consumer Healthcare Joint Venture; (ii)
the Vaccines Acquisition; and (iii) the Oncology
Disposal; and
"Zaoui & Co." means Zaoui & Co. LLP.
Cautionary statement
The release, publication or distribution of this announcement in
jurisdictions other than the United Kingdom may be restricted by
law and therefore any persons who are subject to the laws of any
jurisdiction other than the United Kingdom should inform themselves
about, and observe, any applicable requirements. This announcement
has been prepared for the purposes of complying with the Listing
Rules and the information disclosed may not be the same as that
which would have been disclosed if this announcement had been
prepared in accordance with the laws and regulations of any
jurisdiction outside of England.
This announcement is not intended to, and does not constitute,
or form part of, any offer to sell or an invitation to purchase or
subscribe for any securities or a solicitation of any vote or
approval in any jurisdiction. GSK shareholders are advised to read
carefully the formal documentation in relation to the Transaction
once it has been despatched. Any response to the proposals should
be made only on the basis of the information in the formal
documentation to follow.
Lazard is acting exclusively for GSK and for no one else in
connection with the matters described in this document and is not,
and will not be, responsible to anyone other than GSK for providing
the protections afforded to clients of Lazard, nor for providing
advice in connection with the matters described in this document.
Lazard & Co. Limited is authorised and regulated in the United
Kingdom by the FCA.
Zaoui & Co., which is authorised and regulated in the United
Kingdom by the FCA, is acting exclusively for GSK and for no one
else in connection with the matters described in this document and
is not, and will not be, responsible to anyone other than GSK for
providing the protections afforded to clients of Zaoui & Co.,
nor for providing advice in connection with the matters described
in this document.
Citi, which is authorised by the Prudential Regulation Authority
in the United Kingdom and regulated in the United Kingdom by the
Prudential Regulation Authority and by the Financial Conduct
Authority, is acting exclusively for GSK and for no one else in
connection with the matters described in this document and is not,
and will not be, responsible to anyone other than GSK for providing
the protections afforded to clients of Citi, nor for providing
advice in connection with the matters described in this
document.
Arkle Associates, is acting exclusively for GSK and for no one
else in connection with the matters described in this document and
is not, and will not be, responsible to anyone other than GSK for
providing the protections afforded to clients of Arkle Associates,
nor for providing advice in connection with the matters described
in this document.
Registered in England & Wales:
No. 3888792
Registered Office:
980 Great West Road
Brentford, Middlesex
TW8 9GS
This information is provided by RNS
The company news service from the London Stock Exchange
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