The Spinoff Tease – Glaxo Scraps Plans For ViiV IPO

We have written about British pharma giant GlaxoSmithKline (GSK) a number of times over the past few years, but so far, none of the rumored spinoffs have ever come to fruition. It seems that will remain the case, as CEO Andrew Witty announced that the company would not be pursuing a spinoff of its HIV-centric Viiv. GSK owns over 80% of the fast growing business and had been considering a possible IPO for some time now in order to showcase its value. Pfizer (PFE) and Shionogi own the rest of the business, but their feelings about a possible spinoff were unknown.

The truth is, we first noted the idea of a Viiv IPO back in 2013, but at the time it was something merely under consideration. While there was some chatter of a consumer health spinoff (also being taken under ‘consideration’) last year, the Viiv IPO idea seemed to pick up steam as time went on. Shortly after Dan Loeb took on Amgen (AMGN), the company announced it was (re)considering the idea and by the end of Q1 this year, the company had already hired advisers to take a look at the business. The timeframe was rather short as a decision was promised within a couple of months as the various ‘pros and cons’ were being weighed by management. Analysts were quite excited about Viiv’s prospects, estimating a standalone value of 12-18b GBP, which would have made it one of the largest pharma share offerings ever. Forbes had a nice rundown of what a possible Viiv IPO would look like.

Alas, it was not meant to be (yet) and it ended up as just another head fake by Glaxo on the spinoff front. The company thinks ‘there’s a lot of value in this business’ and Mr. Witty noted that they were ‘glad we reviewed it, we’re glad we reviewed it publicly and we’re very confident that the vast majority of shareholders favor keeping it.’ The story is likely a bit more complicated though as the company also announced plans to retain capital in order to invest in growth. The dividend will remain steady, but the amount of capital being returned to shareholders as a result of the Novartis deal was cut dramatically. The issue is that growth in the rest of the company has been non-existent and the company is struggling to change that trend. With Advair coming off patent, that will only worsen the pain so having Viiv in house generating both growth and cash flows became even more crucial. Hopefully Mr. Witty has some ideas for turning the ship around because some are suggesting that investors could be getting impatient with his performance.

Nothing doing for now, but I wouldn’t be surprised if Glaxo decides to re-reconsider any of its options.

Disclosure: Author holds no position in any stock mentioned.