GlaxoSmithKline (GSK, Financial) jumped 2.56% to $38.39 per share on the heels of an announcement about its joint venture with Novartis AG (NVS, Financial). The $13 billion acquisition represents a 36.5% stake, according to GlaxoSmithKline’s press release.
GlaxoSmithKline and Novartis AG created the joint venture in 2015 as part of a general agreement.The arrangement obliges GlaxoSmithKline, the option seller, to purchase the stake in Novartis, the option buyer, in the joint venture. The Swiss pharmaceutical company must exercise the option. Novartis is able to exercise its right starting March 2018.
GlaxoSmithKline expects a boost in 2018 revenues, adjusted net income and cash flow. CEO Emma Walmsley said: “The proposed transaction addresses one of our key capital allocation priorities and will allow GSK shareholders to capture the full value of one of the world’s leading consumer healthcare businesses. For the group, the transaction is expected to benefit adjusted earnings and cash flows, helping us accelerate efforts to improve performance. Most importantly, it also removes uncertainty and allows us to plan use of our capital for other priorities, especially pharmaceuticals R&D.”
For Novartis the successful completion of the transaction represents the opportunity “to divest a non-core business at an attractive price," said Novartis CEO Vas Narasimhan.
The deal must be approved by shareholders of GlaxoSmithKline.
Year to date, GlaxoSmithKline gained 8% while Novartis AG lost 6%.
GlaxoSmithKline has a market capitalization of $90.37 billion, a price-sales ratio of 2.20 versus an industry median of 3.25 times and a price-earnings ratio of 43.52 versus an industry median of 26.44. The forward PE ratio is 12.67. The forward dividend & yield are $2.55 per share and 7.06%.
The recommendation rating is 2.6 out of 5 and the average target price is $39.93 per share.
Novartis has a market capitalization of $186.23 billion and is trading at $79.45 per share on the NYSE. The average price target is $98.06, and the recommendation rating is 2.5 out of 5.
The price-sales ratio of Novartis is 3.65 times and the price-earnings ratio is 23.93 times. The forward price-earnings ratio is 14.99 times. The forward dividend and yield are $2.98 per share and 3.66%.
(Disclosure: I have no position in any stock mentioned in this article.)
