GSK’s listing of its consumer-products arm Haleon is rapidly “turning into a textbook case of how not to do a spin-off”, says Aimee Donnellan on Breakingviews. The hived-off company, in which Pfizer also owned a stake, floated last month. But last week Haleon’s shares plunged owing to imminent litigation in Illinois over the once-popular heartburn drug Zantac.
GSK – formerly GlaxoSmithKline – stopped selling Zantac in 2019 when US regulators found that a potentially carcinogenic compound was created during the manufacturing process. Haleon, which owns brands such as Sensodyne toothpaste and Panadol painkillers, has never sold Zantac. However, it could have legacy “indemnification obligations” to GSK and Pfizer – a fact that has spooked investors already looking at a pretty “thin” case for holding Haleon.
Branded consumer goods face a tough time as inflation soars and customers seek out value. And it hardly helps that GSK loaded up Haleon with £10bn of debt, four times expected 2022 Ebitda – nor that GSK and Pfizer want to dump their remaining combined 45% holding in the stock.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
During the pandemic we have become used to reading about the “speed and brilliance of innovation in life sciences”, says Alex Brummer in the Daily Mail. The anxiety about Haleon and Zantac is a salutary reminder that new pharmaceutical products often have a “long tail of litigation risk”.
Nor was it just Haleon stock that fell, says Lex in the Financial Times. GSK and Sanofi, which marketed Zantac for a time in the US, slipped too. Morgan Stanley estimates that GSK could account for 30%-60% of any liability, and puts the potential legal hit at anything from $10.5bn-$45bn.
Shares in all three firms have stabilised after assurances about the robustness of their legal positions. Yet investors are right to be “wary”. Bayer’s ongoing legal wranglings over Roundup, the glyphosate weedkiller acquired during the “disastrous” takeover of Monsanto, show how easy it is “to draw a line under compensation claims prematurely”.
The wrong decision
Last December, GSK turned down a £50bn bid for Haleon from Unilever. That “road not taken” is looking very attractive, says Chris Hughes on Bloomberg Opinion. Even applying a “thumping” 50% bid premium to Haleon’s current market value, you get to only £46bn once adding back the net debt. Moreover, “private equity was sniffing around last year, too”. GSK’s chairman Jon Symonds and its boss Emma Walmsley get “paid the big bucks” – £703,000 and £8.2m last year, respectively – to get these decisions right, says Alistair Osborne in The Times.
Instead, GSK has waved goodbye to about £30bn of value, and could now face a “legal dust-up” with its former subsidiary over liability for Zantac claims. “Investors may need to take the entire medicine cabinet to survive this.”
-
-
Number of ISA millionaires tops 4,000
The number of ISA millionaires has surged to more than 4,000 - what does it take to hit the seven-figure sum?
-
NS&I August Premium Bonds draw - check from today
NS&I bond investors can check from today to see if they scooped a prize in this month’s draw. With more than £404m to be handed out in prizes, find out what you won.
-
Investing in wine: how Cru Wine is reaching new audiences
Tips Gregory Swartberg, founder of fine wine specialist Cru Wine, talks to Chris Carter about how to start a wine collection
-
Small companies with big potential
Michael Taylor of Shifting Shares reviews his 2023 picks and highlights more promising minnows.
-
The MoneyWeek portfolio of investment trusts – July 2023 update
Tips A decade ago we set up the MoneyWeek portfolio of investment trusts. They remain a compelling long-term bet says Rupert Hargreaves
-
Women lead the way with ethical investments
Demand for more ethical investments has soared – and women are more likely to opt for them. Annabelle Williams, personal finance specialist at Nutmeg, takes a look at why.
-
BoE: Mortgage payments to rise by £220 a month for households
Millions of households can expect a mortgage spike of around £200 a month - and some may even reach a extra £1,000 a month, the Bank of England warns
-
What happened to Thames Water?
Thames Water, the UK’s biggest water company could go under due to mismanagement and debt. We look into how the company got itself into this position, and what investors should expect.
-
Where to invest in the metals that will engineer the energy transition
A professional investor tells us where he’d put his money. This week: John Ciampaglia, manager of the Sprott Energy Transition Materials UCITS ETF.
-
How investors can profit from high food prices
The latest furore over grocery prices will die down, says David Stevenson. But the long-term outlook for soft commodities remains bullish. These are the stocks investors can buy to profit from high food prices.
