Glaxo out to swallow Roche household brands

Click to follow
The Independent Online

GlaxoSmithKline, Britain's biggest pharmaceutical company, is lining up a £1bn-plus bid for the consumer healthcare division of its Swiss rival, Roche.

GlaxoSmithKline, Britain's biggest pharmaceutical company, is lining up a £1bn-plus bid for the consumer healthcare division of its Swiss rival, Roche.

A successful deal would bring Roche's portfolio of household brands, including Rennie indigestion tablets and Berocca vitamin supplements, together with GSK's own consumer business, which had sales of £3.3bn last year. GSK owns Aquafresh toothpaste, Lucozade energy drinks and Nicorette anti-smoking patches.

Roche's consumer division had sales of 1.77bn Swiss francs (£750m) in 2003, but Franz Humer, the Roche chief executive, said earlier this month that it was sub-scale and its future was being reviewed. He is hoping to raise up to £1.5bn from any disposal, although the company is also considering putting it into a joint venture or boosting the business through acquisitions. He promised to make a decision on the future of the division within months.

Analysts installed GSK as favourite to win control of the business, since the British group would be able to realise substantial synergies in manufacturing, marketing and distribution. It is coming to the end of the cost savings squeezed from the integration of Block Drug, the US maker of Sensodyne toothpaste, which it bought for £832m in 2001.

GSK has ruled out any mega-mergers, despite moves to consolidate the European pharmaceuticals industry, but observers believe bolt-on acquisitions in this vein could be attractive in the face of one or two difficult years for sales and profit growth. Dr Garnier has already signalled that 2004 will be a "year of transition" as GSK loses sales of several blockbuster drugs, which have lost patent protection and face cheap copycat competition.

The UK company is likely to face opposition in the bidding war from Bayer of Germany and perhaps some of the US pharmaceuticals giants, such as Pfizer. Private equity bidders including Candover, Permira and Kohlberg Kravis Roberts are also thought to be interested, attracted by the stable cash flows.

Jean-Pierre Garnier, the chief executive of GSK, earlier this month reaffirmed his commitment to the consumer healthcare part of the business where, although margins are thinner, the risks are lower. Sales grew 4 per cent at constant currencies last year, despite falling sales of anti-smoking gums and patches.

Roche returned to profit in 2003 after suffering legal costs and other exceptional charges the previous year, but it is now keen to concentrate on higher margin prescription pharmaceuticals and diagnostic tests. The company has been resisting pressure to merge with its compatriot Novartis, which has a 33 per cent stake in Roche.

Comments