GlaxoSmithKline Plc (ADR) (NYSE:GSK) Considering Acquiring Novartis AG (ADR) (NYSE:NVS) Share in Joint Venture

Reports indicate that GlaxoSmithKline plc (ADR) (NYSE:GSK) is considering plans to acquire a stake that is held by Novartis AG (ADR) (NYSE:NVS) in their consumer healthcare joint venture. Currently, Novartis owns 36.5% of GSK Consumer Healthcare, a joint venture that is responsible for over-the-counter drugs such as Panadol and Beechams. Novartis’ stake is worth approximately $10.3 billion.

According to sources the proceeds from the sale of the position would be used by Novartis to finance a megatakeover with one of its other potential targets AstraZeneca. GlaxoSmithKline, on the other hand, would benefit from having more control over the world’s biggest consumer health operation. According to source who spoke to The Times where the report initially appeared, GlaxoSmithKline had always wanted to exclusively own the unit which started out as a joint venture three years ago.

Joint venture

Though the two companies have not confirmed the deal, it is in line with statements made in the past. Also the new chief executive office of GlaxoSmithKline, Emma Walmsley, was head of the consumer healthcare joint venture before she was promoted earlier in the year.

The report comes just days after one of the key investors in GlaxoSmithKline, Neil Woodford, dumped the stock. The investor had repeatedly called for the company to be broken up and have the consumer healthcare unit of GlaxoSmithKline split off.

“Over a holding period of more than 15 years, I have consistently believed that GlaxoSmithKline was capable of delivering growth and realising shareholder value. Neither has been forthcoming to the extent that I had hoped and expected,” Woodford Glaxit – Woodford Funds after selling off his stake in the British pharmaceutical firm in a move he branded ‘Glaxit’.

Dividend sustainability

Besides his frustrations over GlaxoSmithKline not being broken up as per his wishes Woodford also expressed doubts concerning the sustainability of the drugmaker’s dividend noting that over 50% of GlaxoSmithKline’s growth in the recent past has come mainly from one source – the HIV treatment unit. As one of the most successful investors in the United Kingdom, Woodford’s lack of confidence in GlaxoSmithKline could spook other shareholders.

On Monday shares of GlaxoSmithKline plc rose by 0.30% to close the day at $43.39.