This year has been a blowout year for mergers within the pharmaceutical sector. Indeed, three out of the four pharmaceutical and medical device manufacturers within the FTSE 100 have already received takeover approaches. And we’re only halfway through the year.
However, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) has been left out in the cold. The company is the only pharmaceutical company within the FTSE 100 whose independence has not been called into question this year.
But why has Glaxo been left out of the deal frenzy? Is there any chance that the company could become a target?
Eye-watering price tag
Glaxo’s size may have something to do with the fact that the company has not been the subject of a takeover approach. Glaxo is currently worth £77bn, making it the sixth largest publicly traded biotechnology company.
Unfortunately, with a price tag of £77bn, or $130bn there are very few companies that could actually afford Glaxo. What’s more, any buyer would have to offer a premium to the current price. A standard 20% premium would take Glaxo’s price tag up to $156bn.
Realistically, there are only two of Glaxo’s peers that could afford this hefty price tag: Johnson & Johnson and Novartis.
Luckily, Glaxo already has a strong relationship with Novartis. The two only strengthened their relationship earlier this year when they participated in an asset swap. So, there is the potential for merger activity here.
Unattractive
Aside from its lofty price tag, Glaxo is a really unattractive acquisition target. For example, Shire and Astrazeneca — Glaxo’s two FTSE 100 peers, both of which have received takeover approaches — are world leaders in their respective fields. Glaxo does not hold a similar title.
In particular, Shire is a global innovator in specialty biopharmaceuticals for rare diseases, while Astrazeneca has a strong immuno-oncology pipeline, built up through various acquisitions over the years.
Glaxo lacks a dominant position within a specialist field, although the company, through its joint venture with Novartis, will become a leader in the consumer healthcare business.
Political storm
Even if Glaxo was an attractive takeover target, the political storm that erupted following Pfizer’s bid for Astrazeneca is bound to put any potential suitors off.
Indeed, Pfizer’s chairman, Ian Read, spent two days being questioned by MPs on both the Commons Business Select Committee and the Science Committee. The pharmaceutical giant also gave a five-year pledge on UK jobs and facilities, although these claims were called “worthless” Labour Party leader Ed Miliband.
A takeover of Glaxo would result in a similar level of political opposition, if not more.
