If I had to make that call today, I’d stick to what we have, Graham. And what I’ve said repeatedly is that call isn’t one to be made today. Why? Because we still have 2 or 3 or more years to go in terms of really demonstrating and articulating the full value of the consumer business. It would be a little odd, I think, to make a substantial change today when we’re on the track we’re on and we’re delivering the progress we’re delivering. At CER, for us to give a 320 bps bump in margin in Q4, why would you rock that boat? I mean, you want that boat to just keep going forward, building that margin expansion, building that growth. So simply put, I believe that the strategy we embarked on in ’08 remains an extremely viable strategy for the environment that we all anticipate over the next 5 or 6 years, particularly if you have any anxiety at all about U.S. pharmaceutical pricing. I think it really emphasizes the point. Secondly, I think the evidence post the disruption of the transaction, and obviously the new realities of dealing with product launches, I think we can show very clearly the progress we’re making in all 3 businesses. And I wouldn’t make that call. I wouldn’t really ask that question for a while until we’ve really seen the delivery.
Get it yet? Not interested. Unfortunately, he was asked about this again which led to this:
We should be very thoughtful before doing anything which disrupts that, particularly when the strategic case is a strong case for what we’re doing at the moment. My view is time is everybody’s friend in this conversation. This is all about ensuring that we deliver the creation of a great company. And then at the right moment, there is a sensible discussion about whether or not it should continue to be part of this configuration or a different one. But it’s not today.
…and then he was asked again. You can almost see the facepalm in the transcript. Gotta love research teams. During his first response, Sir Witty pointed to the heart of the matter:
Last thing I would say is I think sometimes, we mix up what might be causing the question. So the real issue of GSK over the last 6 or 7 years hasn’t really been whether we own consumer or we don’t own consumer. It’s been how do we deliver sales growth when you’ve got a very, very significant amount of old pharmaceutical portfolio to be rotated off through genericization. And the reality is that we’re well on the way to essentially rotating off almost 100% of what was the pharma business in ’08. That’s the real story. That’s the headwind of what holds back the growth of the business. What we’re beginning to see, and as we roll through the Advair story of the next 3 years or so, we’re going to get through all of that. We’re already starting to see the opportunity for the top line to grow again because of the changes we made to the group. And we’ve essentially done all of that in an organic or certainly cash-positive way for the shareholder in terms of deployment of resources for the company. I think that’s the right thing to do. But that is really the story of what’s been going on behind this, if you will, under the surface, as you well know, but not always recognize.
That’s the real rub – the push for these transactions often (although not always) occurs at companies that are struggling and shareholders are looking for ways to create value. Sir Witty has vocally steered the company in a certain direction, focusing on volume, not price, and not everyone agrees with his strategic choices. Additionally, there have been a couple of public missteps during his tenure as well. His argument is basically that yes, there are issues, but that the strategy is working and this unit is a key part of that. Give it time.
CEOs always want more time, but of course, job security is promised to no one. In fact, several large investors have been agitating for change at GSK over the past few months. Prominent UK investor Neil Woodford (showing my US bias here – apparently he is legendary over there, but I had never heard of him) suggested the company be broken into as many as four different pieces. On the US front, Och-Ziff (OZM) recently set its sights on Sir Witty and are urging Chairman Philip Hampton to shake things up. The piece quotes a source from OZ going even further, saying that ‘it’s a question of “when, not if” Witty leaves the CEO job’. Wow.
Let’s see what happens. Sir Witty has successfully fought off spinoff desires – at the consumer unit and Viiv – for years yet the rumors keep swirling. At times he has appeared open to change, but it’s hard to tell if that is just lip service. With the involvement of activists, the situation appears to be escalating, but activism seems to work a bit differently on the other side of the pond. My guess he ends up getting a bit more time to prove his strategy and convince shareholders to stay the course.
Disclosure: Author holds no position in any stock mentioned.