response to this morning’s announcement regarding the purchase of
oncology-focused biopharmaceutical company TESARO Inc.(TSRO
73.72, +27.34, 59.0%), shares of drug manufacturing giant GlaxoSmithKline (GSK
38.55, -3.32) have slipped. GSK also announced the divestiture of Horlicks and
other consumer healthcare nutrition brands to Unilever plc (UN/UL
55.35, -0.16, -0.3%).
First off, the TESARO deal holds that GSK will acquire TESARO for an aggregate cash consideration of about $5.1 bln (£4.0 bln), or $75 per share in cash, representing a 110% premium to TESARO’s 30-day Volume Weighted Average Price of $35.67 and an aggregate consideration of around $5.1 bln (£4.0 bln) including the assumption of TESARO’s net debt.The deal is expected to close in the first quarter of 2019.
Zejula’s revenues in its current approved indication as second-line maintenance treatment for ovarian cancer were $166 mln for the 9 months ended 30 September 2018.
GSK expects the acquisition of TESARO and associated R&D and commercial investments will impact adjusted EPS for the first two years by mid to high single digit percentages, reducing thereafter with the acquisition expected to start to be accretive to adjusted EPS by 2022.
GSK’s guidance for full-year 2018 adjusted EPS growth remains unchanged at 8-10% at CER. GSK continues to expect to deliver on its previously published Group Outlooks to 2020, but following the acquisition of TESARO now expects adjusted EPS growth at CER for the period 2016-2020 to be at the bottom end of the mid to high single digit percentage CAGR range.
GSK confirms no change to its current dividend policy and continues to expect to pay 80p in dividends for 2018.
Recall that in mid-November a Bloomberg suggested TSRO had tapped financial advisors after receiving takeover interest. A few days later, an unconfirmed rumor surfaced that TSRO had cancelled out of a conference appearance.
GlaxoSmithKline also announced that, following the completion of its previously announced strategic review, the company will divest its Horlicks and other consumer healthcare nutrition brands to Unilever plc. The company also announced the merger of GSK Consumer Healthcare Limited with Hindustan Unilever Limited for a total consideration valued at about £3.1 bln based on the 15-day volume weighted average price ending Friday 30 November 2018 of HUL shares of INR1,717. Net proceeds are estimated to be approximately £2.4 bln on the same basis.
The proposed transaction involves the merger of GSK India with HUL, a public company listed on the NSE and BSE, following which GSK will own approximately 5.7% of HUL. The merger values GSK India at INR317 bln in total, or INR7,540 per share, a 15.4% premium to the un-disturbed share price of INR6,531 as at close of business on 26 March 2018.
The deal is expected to close by the end of 2019 at which time GSK intends to sell down its holding in HUL. In addition, GSK is to sell its 82% stake in GlaxoSmithKline Bangladesh Limited and other related brand rights for GSK's consumer healthcare nutrition activities in certain other territories to Unilever, for which it is expected to receive cash proceeds equivalent to £566 mln.
Both GSK and Unilever, who hold 72.5 % and 67.2% of the shares in GSK India and HUL respectively, intend to vote in favor of the merger.
Shares of TSRO peer Clovis Oncology (CLVS 20.32, +3.11) are up nearly 18.1% in sympathy to the healthy premium of the deal. Shares of GSK fall below both the 50-day (40.11) and the 200-day (39.91) simple moving averages following this morning’s batch of news.
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