GlaxoSmithKline plc To Return £4bn To Shareholders

After exchanging assets with Novartis, GlaxoSmithKline plc (LON: GSK) enhances its earnings potential.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 22 April, 2014 9:24 am BST

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Shares in GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) added 64p to 1,625p during early trade this morning after the British healthcare firm announced the $14.5bn sale of its oncology portfolio to Swiss drugs producer Novartis. The total may rise to $16bn pending the result of a Phase III study into the melanoma drug COMBI-d.

Novartis will additionally sell its vaccines business (excluding influenza treatments) to Glaxo for an initial cash consideration of $5.25bn. Again, milestone payments could see the sum rise by $1.8bn.

The consumer divisions of Glaxo and Novartis are set to merge to create a ‘world-leading’ consumer healthcare business with £6.5bn in revenue in 2013. GSK is assuming majority control with a 63.5% equity interest.

Sir Andrew Witty, Glaxo’s chief executive, commented:

“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.”

“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.”

After this morning’s price movement, Glaxo shares offer a trailing dividend yield of 4.7%, while analysts will be adjusting their initial forecasts for earnings per share (EPS) in 2014. Following the completion of the transaction with Novartis GSK expects to return £4bn to shareholders.

It was only last week that Glaxo shares tumbled 5% on fresh bribery allegations, but the share price has since bounced back.