On Tuesday morning, GlaxoSmithKline (LSE: GSK) shares were limping along, opening down at 1,383p before rising to 1,390.2p at 10.50am. Then, the GSK share price suddenly took off, leaping by 70p (+4.7% on Monday’s close of 1395.2p) to hit an intra-day high of 1,460.20p. What caused the shares to suddenly jump before lunchtime? There are two possibilities.
GSK share price lifted by bid talk?
One reason for the GSK share price’s sudden rise was a story on Bloomberg business news. In this exclusive, published around 11am, the news site revealed that the UK pharma giant’s consumer healthcare division was being stalked by potential buyers. GSK plans to split itself into two distinct companies in 2022: consumer healthcare and biopharma. However, according to Bloomberg, private equity firms are “circling” the consumer healthcare arm as a potential takeover target. Other bidders might include other pharmaceutical and FMCG (fast-moving consumer goods) rivals. This may explain the GSK share price jumping earlier today.
In what it’s describing as potentially “the biggest buyout of all time“, Bloomberg reckons the consumer arm could be valued at over £40bn ($54bn). Potential suitors include the likes of Advent International, CVC Capital Partners, and KKR. Given the sheer scale of any sale, several buyout groups could team up to make a combined bid for part of the UK’s second-largest healthcare company. Bloomberg reports that the unit’s yearly sales exceeded £10bn in 2020. But CEO Dame Emma Walmsley has been planning to split GSK into two distinct businesses for nearly three years. As things stand, the group remains on track to lists its consumer healthcare unit in London in mid-2022, nine months away. By 2.15pm, the GSK share price had dropped back to trade at 1,429.4p, up 36.6p
Stock helped by vaccine news?
An alternative explanation for the GSK share price’s quick leap could be another news report, this time on Covid-19 vaccines. The Financial Times reported that CureVac has abandoned its first vaccine. Instead, the German biotech will focus on developing a more promising new jab with partner GSK. Despite being the world’s leading supplier of vaccines, GSK has fallen behind the curve in developing effective vaccinations against the coronavirus. The FT also reported that CureVac’s phase-three trials revealed a weak 48% efficacy rate overall. Hence, the group withdrew its application to the European Medicines Agency (EMA) for regulatory approval. The second vaccine “appears to elicit 10 times more antibodies [in animal trials] than the first vaccine“, according to the FT. The partners are also working on a joint coronavirus and influenza (flu) jab.
I still own this stock
On 18 August, the GSK share price hit a 52-week high of 1,528.8p. Today, the stock is roughly £1 below that level, valuing the firm at £71bn. I own GSK shares and have done for almost 30 years. Alas, I’m kicking myself for not selling when the shares peaked in late August. But if a bidding war does erupt for consumer healthcare, then it might send the shares soaring again. If the group can get a higher price by selling the division than it could hope to by listing it, then selling may be the better option. Also, a formal auction of the unit might flush out several firm bidders. Hence, for now, I will hang onto my GSK stock and await developments!