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GlaxoSmithKline ( GSK - Analyst Report ) recently announced that it has reached an agreement with Omega Pharma to divest non-core over-the-counter (OTC) brands sold in Europe. As per the terms of the agreement, Omega Pharma will pay £391 million (€470 million) in cash to Glaxo. The deal is expected to complete in the second quarter of 2012.
The brands being divested to Omega Pharma include Lactacyd, Abtei, Solpadeine, Zantac, Nytol and Beconase. These brands collectively recorded sales of approximately £185 million in 2011.
Ownership of Glaxo’s German plant, Herrenberg, where many of the divested brands are manufactured, will also be transferred to Omega Pharma. The net cash proceeds of approximately £310 million from the deal will be distributed to shareholders during 2012.
This divestment comes as a part of Glaxo’s plan to divest non-core Consumer Healthcare OTC products primarily in the US and Europe, announced earlier in February 2011. The total annual sales of these products amounted to approximately £500 million. Glaxo has undertaken this divestment plan with the intention of channeling its focus on priority brands and markets.
In December 2011, Glaxo signed an agreement with Prestige Brands Holdings, Inc. ( PBH - Snapshot Report ) to divest non-core OTC brands sold in the US and Canada. The brands divested to Prestige Brands included BC, Goody's, Beano, Ecotrin, Fiber Choice and Tagamet.
As per the terms of the agreement, Prestige Brands paid £426 million ($660 million) in cash to Glaxo. The deal was completed in January 2012. The net cash proceeds of £242 million from the deal will be passed on to shareholders through a supplemental dividend of 5p along with the fourth quarter 2011 ordinary dividend.
Glaxo is in an ongoing process for selling its non-core OTC brands outside the US, Canada and Europe. These products recorded sales of approximately £60 million in 2011. A supply disturbance has caused a delay in Glaxo’s plan for selling global rights of alli.
We currently have a Neutral recommendation on Glaxo. The stock carries a Zacks #3 Rank (Hold rating) in the short run.
While several products in the Pharmaceuticals segment are facing generic competition, the Consumer side of the business is performing well and should help drive top-line growth. Moreover, Glaxo’s diversified base and presence in different geographical areas should help support revenue growth.
Meanwhile, Glaxo’s restructuring initiative should help offset the impact of increasing generic competition in the next few years and help increase earnings at a faster pace than revenues. Share buybacks should also drive bottom-line growth.
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