ALEX BRUMMER: GSK boss could have sent Haleon abroad

ALEX BRUMMER: GSK CEO Emma Walmsley’s spin-off from Haleon may not seem decisive for the post-Brexit stock market, but it could have gone overseas

  • Companies in the healthcare sector in particular are gravitating towards New York
  • Not to like in the form of banker fees and generous compensation at Haleon
  • The split should do the city good

Here’s something for the city to celebrate as the anniversary party begins. The FTSE 100 is set to gain a newcomer worth over £45 billion after the release of the 467-page prospectus for the IPO of Haleon, the healthcare arm of GlaxoSmithKline.

At first glance, the demerger from Haleon, the maker of emblematic brands like Sensodyne and Panadol, might not appear critical for the London Stock Exchange post-Brexit.

But other choices could easily have been made. In the healthcare and technology sectors in particular, companies tend to move to New York and other markets because London stocks trade at a discount to overseas counterparts.

Changes: GlaxoSmithKline boss Dame Emma Walmsley was responsible for Haleon’s levitation

Executives at health equipment and limb replacement group Smith & Nephew planned to cross the Atlantic in 2019, but were rebuffed when it emerged the main motive for doing so was that New York boss salaries and incentive packages are much higher!

In 2018, Unilever proposed moving to Rotterdam, better hidden from activists. Among the city refugees was the float of the Vodafone offshoot Vantage Towers, which went to Frankfurt. It can never be taken for granted that the UK is the number one choice for business. This is despite the fact that Vodafone’s existence is a tribute to British innovation and technology and Square Mile’s willingness to back its ambitions.

Critics of the fat pay will find an easy target in Brian McNamara, Haleon’s CEO. His salary package, including incentive shares, pension rights and moving expenses, could be worth £10.4million. That would surpass GlaxoSmithKline boss Dame Emma Walmsley’s total salary of £8.2million in 2022 and more than double the £4.2million earned by Unilever boss Alan Jope, who was willing to pay £50billion to pay for a commercial purchase of Haleon.

Bringing Haleon to the public market is a significant milestone for CEO Walmsley. Since taking over the top position at Glaxo in 2017, the former L’Oreal boss has struggled to unlock value. Under its predecessor, scientist Andrew Witty, the company struggled with ethical abuses around the world from the US to China and fell far behind in oncology after an asset swap with Swiss company Novartis in 2015.

Walmsley was asked to pick up the broken pieces. The election of famed researcher Hal Barron as San Francisco-based head of research and development was seen as an important step, but undermined by his early departure. More recently, Glaxo has turned to acquisitions to accelerate life sciences growth.

This week it poured £2.4 billion into biopharmaceutical company Affinivax to expand the world’s leading vaccines business.

The recovery path for Walmsley has not been so smooth. Despite its vaccine know-how, GSK was a big loser in the race for a Covid vaccine as British rival AstraZeneca rushed ahead with its life-saving rollout of the Oxford University vaccine.

The GSK boss was also targeted by activist fund managers Elliott Partners. It recognized the valuation gap with other big pharma companies that Walmsley is struggling to bridge. Elliott’s proposed solution is for Walmsley to resign after the healthcare split and for GSK to appoint a scientifically qualified chief executive to head pharmaceutical operations.

Haleon will raise around £10 billion of debt, allowing GSK Pharma to reduce borrowing and increase capacity for quick acquisitions. It will retain a minority stake in Haleon as the dividend income will allow it to increase research and development.

Pfizer plans to sell its 32% minority stake in Haleon in a “disciplined” manner once the lock-up period — which prohibits sales — ends.

Transformations don’t come cheap. The biggest winners will be advisors Citigroup, Goldman and Merrill Lynch, with total fees for the demerger and related transactions set to total more than £500m. That’s nearly a third of Haleon’s £1.6 billion profit for the year ended March.

In the form of banking fees and overly generous compensation, there’s a lot to complain about at Haleon. Nevertheless, the split should be good for the city.

The next major task for Boris Johnson’s limping government is convincing Masayoshi Son of his duty to bring Cambridge-based semiconductor designer Arm Holdings back to London.

It is never too late.

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ALEX BRUMMER: GSK boss could have sent Haleon abroad

Source link ALEX BRUMMER: GSK boss could have sent Haleon abroad

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