Shake-up: Glaxo chief Emma Walmsley promises ‘gradual change’ for investors
Emma Walmsley, embattled head of GlaxoSmithKline, is set to unveil a huge dividend cut that will divert billions of pounds into a war chest for growth.
Sources close to the drug giant said the drastic move would provide Walmsley with “firepower” to rejuvenate Glaxo’s share price.
The Mail on Sunday may reveal that it will attempt to woo investors by promising “gradual change in growth and shareholder returns”.
It comes after US hedge fund Elliott Management took a multibillion pound stake – and raised concerns privately about Walmsley’s suitability for the role of chief executive.
In what will be billed as the ‘biggest corporate change for GSK in 20 years’, Walmsley is set to reveal how and when GSK will divest its consumer business – which includes Sensodyne toothpaste and Panadol pain relief. – its pharmaceutical and vaccines branch then year.
A stock market float is planned for the consumer division. GSK was formed when Glaxo Wellcome and Smithkline Beecham merged in 2000.
In a crucial event for investors on Wednesday, the bosses will also unveil a pipeline of promising blockbuster drugs, including treatments for HIV.
In addition, they will provide a detailed five-year growth forecast and outline plans for scientists in the pharmaceutical and vaccine divisions to work more closely together.
It is understood that CFO Iain Mackay will discuss the level of the dividend cut, which will take place next year, and GSK’s long-term payment goals.
The 306-year-old company has paid shareholders an 80p dividend, representing a distribution of £ 4bn, every year since 2014. The payout is expected to be reduced to between 40p and 50p next year. A cut to 45p would represent a reduction of £ 1.7bn from the annual dividend pool to around £ 2.3bn.
Berenberg analysts described the move as “short-term pain for long-term gain” and predicted it could generate £ 5.5bn in cash by 2025.
In a letter to Glaxo’s 94,000 employees, sent late last week and seen by The Mail on Sunday, Walmsley wrote: “We will set ambitions for the new GSK: for a large-scale global health impact; a radical shift in growth and returns for shareholders; and as a company where great people can truly thrive. ‘
She added that GSK’s strategy “continues to focus on the science of the immune system, human genetics and advanced technologies to get ahead of infectious diseases, HIV, cancer, and immune and respiratory mediated diseases.”
A source close to GSK said the money freed up by the dividend cut would be spent on a mixture of research, acquisitions, paying off debt – including moving it to consumer activities – and investing in the manufacture, in particular for vaccines. “It will give us more firepower,” the source said.
Walmsley is expected to invest some of the savings in GSK’s drug pipeline, with patents on 14 products worth around £ 10 billion a year set to expire over the next decade.
The long-anticipated Investor Day has taken on added significance since U.S. raider Elliott appeared on the share register in April. The hedge fund has yet to make its intentions public, but sources told The Mail on Sunday that Elliott questioned Walmsley’s suitability – whose background is in consumer products – to run the business. after the split.
GSK’s stock price has fallen 15% since Walmsley took office in 2017. Concerns about its research and development pipeline have weighed on stocks and Walmsley has been criticized for not developing the own vaccine. GSK Covid.
The main investors have reportedly discussed with Elliott the idea of parting with Glaxo’s vaccine arm. But insiders said GSK will focus on the benefits of increased collaboration between pharmacy and vaccines. “We definitely have a big opportunity with vaccines and this is an important part of the growth of the new GSK,” the source said.
GSK is now expected to more closely align its work on the prevention and treatment of infectious diseases such as influenza.
Walmsley is unlikely to announce specific acquisitions on Wednesday, following last week’s announcement of a $ 2 billion (£ 1.45 billion) deal with iTeos Therapeutics to sell a potential cancer treatment. It is also not expected to reveal clinical breakthroughs due to strict regulations regarding the publication of medical data.
GSK shares hit a nadir below Walmsley of £ 11.90 in February, but rallied to £ 14.30.
Analysts at Morgan Stanley, which has a target price of £ 15.50, said: “The key question for investors is whether the pace of change is fast enough as the company gradually moves into a trading operation. more innovative and specialized drugs, potentially generating more and more sustainably. ‘
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