Private Equity Firms Circle GlaxoSmithKline’s $54 Billion Consumer Arm

(Bloomberg) --

GlaxoSmithKline Plc’s consumer unit is drawing interest from private equity firms in what could lead to the biggest buyout of all time, people with knowledge of the matter said. 

The drugmaker’s advisers are informally fielding interest in the operations alongside preparations for a listing, the people said, asking not to be identified because the information is private. Advent International, CVC Capital Partners and KKR & Co. are among potential suitors evaluating the business, they said.

Blackstone Inc., Carlyle Group Inc. and Permira are also seen as likely suitors for the consumer arm, which could be valued at 40 billion pounds ($54 billion) or more in any deal, the people said. The unit, with brands including Panadol painkillers, Tums antacids and Centrum vitamins, could also attract some of the world’s biggest pharmaceutical and consumer-goods companies.  

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Glaxo’s planned split into separate pharmaceutical and consumer businesses has been in the works for almost three years. Chief Executive Officer Emma Walmsley is fending off pressure from activist investors Elliott Investment Management and Bluebell Capital Partners for faster change. The company has fallen behind rivals such as AstraZeneca Plc in developing innovative drugs, and was sidelined in the race to create Covid-19 shots despite being the world’s biggest vaccine maker.

Glaxo said Tuesday that it’s on track to demerge the consumer unit in mid-2022 and repeated that the board will evaluate any options that would boost shareholder value.

Glaxo shares rose as much as 4.8% in London trading Tuesday. The stock was up 2.2% at 12:50 p.m., giving the company a market value of about 72 billion pounds. 

The consumer business has “strong growth prospects which will be further enhanced by its access to the capital markets and ability to set its own strategy” as an independent company, Glaxo said. The drugmaker added that feedback it received from shareholders reflected that “they are very keen to own the new consumer healthcare company as a listed entity through the demerger”. Glaxo set up the business in 2018 by combining its consumer arm with that of Pfizer Inc. which still has a stake in the venture. 

Goldman, Citigroup

Glaxo is working with Goldman Sachs Group Inc. and Citigroup Inc. on preparations for a separate listing of the business, Bloomberg News reported in June.

Any deal for Glaxo’s consumer business would rank as one of the largest acquisitions globally this year and the biggest private equity takeover on record, data compiled by Bloomberg show. It would surpass the $48 billion takeover of TXU Corp. by KKR and TPG in 2007. 

Given the size of the potential deal, buyout firms could end up teaming up for an acquisition and rope in sovereign wealth funds or pension managers for more firepower, the people said. 

Glaxo’s consumer business is one of the world’s largest, generating annual sales of more than 10 billion pounds last year. Drugmakers like Novartis AG have abandoned the field of consumer health to focus on higher-margin prescription drugs. Others, like Bayer AG, have doubled down by snapping up rivals’ brands.

Activist Pressure

On Tuesday, Bluebell ramped up the pressure on Glaxo’s management by calling for the removal of Chairman Jonathan Symonds, Bloomberg News reported. The activist hedge fund has already questioned Walmsley’s leadership as it joins Elliott’s call for Glaxo to exit the consumer business and help revive a flagging share price. 

Engaging with potential buyers allows Glaxo to get a sense of whether it could achieve a higher valuation for the unit through a listing or outright sale. Fielding interest without launching a formal auction process could also help the company avoid the pressure of needing to sell if suitors don’t offer an attractive price. 

Deliberations are ongoing, and there’s no certainty they will lead to a transaction, the people said. Spokespeople for Blackstone, Carlyle, KKR and Permira declined to comment. Representatives for Advent and CVC didn’t immediately reply to requests for comment.

The interest comes on the back of record capital in the buyout industry and signals growing appetite from these investment firms to look at larger transactions. A consortium led by Blackstone, Carlyle and Hellman & Friedman agreed in June to buy medical supply company Medline Industries Inc. in a deal valued at more than $30 billion.

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