Novartis Considers Major Acquisition of GSK to Re-enter Vaccines and Virology Markets

Intelligent Finance APP learned that Intron Health Advisors, a London-based equity research firm, stated that Swiss pharmaceutical company Novartis (NVS.US) is considering a large-scale acquisition, and GlaxoSmithKline (GSK.US) could potentially become a target for Novartis. Analyst Naresh Chouhan believes that a potential merger between Novartis and GlaxoSmithKline would allow Novartis to re-enter the vaccine market and virology sector, diversifying its business and moving away from the highly competitive and risky oncology field.

It is reported that Novartis divested its global vaccines business (excluding flu vaccines) to GlaxoSmithKline in 2015 for $5.25 billion.

The analyst mentioned above expects that even if the deal comes with a 40% premium, assuming its synergies reach $2 billion and the cost of debt hits 6%, such a transaction could still appreciate by more than 40% three years later. By 2025, cash-based deals will reduce net debt to 2.4 times EBITDA.

Moreover, the analyst pointed out that the "temporary pricing error" of GlaxoSmithKline PLC.'s stock, due to the financial burden on GSK from claims in the Zantac (ranitidine) heartburn treatment litigation, has paved the way for an "opportunistic" acquisition.

It was reported that in 2019, Zantac was globally recalled due to "unacceptable levels of N-nitrosodimethylamine" (N-nitrosodimethylamine is a carcinogenic substance, abbreviated as NDMA). Following the recall, companies including Sanofi (SNY.US), GlaxoSmithKline, Pfizer (PFE.US), and Boehringer Ingelheim faced litigation.

In August this year, GSK was hit by a sell-off due to market concerns over lawsuits related to the Zantac recall.