ALEX BRUMMER: GSK boss could have sent Haleon abroad


ALEX BRUMMER: Split-out of Haleon by GSK boss Emma Walmsley might not seem critical to post-Brexit Stock Exchange, but it could have gone abroad

  • Tendency particularly in the healthcare, for companies to head to New York 
  • Much not to like in shape of bankers’ fees and generous remuneration at Haleon
  • Demerger should be good for the City

Here is something for the City to celebrate as the Jubilee party begins. The FTSE 100 is to gain a £45billion-plus newcomer following the release of the 467-page prospectus for the float of Haleon, the health care arm of GlaxoSmithKline. 

At first glance, the split-out of Haleon, producer of emblematic brands such as Sensodyne and Panadol, might not seem critical to the post-Brexit London Stock Exchange. 

But other choices could easily have been made. There is a tendency, particularly in the healthcare and tech sectors, for companies to head to New York and other markets on the grounds that London shares trade at a discount to overseas counterparts. 

Changes: GlaxoSmithKline boss Dame Emma Walmsley has been responsible for floating Haleon

Executives at health devices and limb replacement group Smith & Nephew plotted to cross the Atlantic in 2019 but were turned back when it was revealed that the main motive for doing so was that pay and incentive packages for bosses are much higher in New York! 

In 2018 Unilever proposed to relocate to Rotterdam, more safely hidden away from activists. Among the escapees from the City was the float of Vodafone offshoot Vantage Towers, which went to Frankfurt. It can never be a given that the UK is the first choice for companies. This is in spite of the fact that Vodafone’s existence is a tribute to UK innovation and technology and the willingness of the Square Mile to back its ambition. 

Critics of fat cat pay will find an easy target in Haleon chief executive Brian McNamara. His pay package including incentive shares, pension rights and re-location costs could be worth £10.4m. That would outstrip presplit GlaxoSmithKline boss Dame Emma Walmsley’s total pay of £8.2m in 2022 and would be more than double the £4.2m earned by Unilever boss Alan Jope who was ready to pay £50billion in a trade purchase of Haleon. 

Bringing Haleon to the public markets is a significant milestone for chief executive Walmsley. The former L’Oreal boss has struggled to release value since she took the top job at Glaxo in 2017. Under her predecessor, scientist Andrew Witty, the company wrestled with ethical violations around the globe from the US to China and fell far behind in oncology after doing an asset swap with Switzerland’s Novartis in 2015.

Walmsley has been required to pick up the pieces. The choice of famed researcher Hal Barron as R&D chief based in San Francisco was seen as an important step but was undermined by his early departure. More recently Glaxo has turned to acquisitions to help pick up the pace of life sciences growth. 

This week it splashed £2.4bn on biopharmaceutical company Affinivax in an extension of world-leading vaccine operations. 

The recovery path for Walmsley has not been that smooth. In spite of its vaccine expertise, GSK was a big loser in the race for a Covid jab as UK rival AstraZeneca raced ahead with its life-saving rollout of the Oxford University inoculation. 

The GSK chief also has found herself in the sights of activist fund managers Elliott Partners. It spotted the valuation gap to other big pharma companies which Walmsley is struggling to erase. Elliott’s proposed solution is that Walmsley step down after the healthcare separation and GSK install a chief executive with science credentials to head pharma operations. 

Haleon will be taking on a chunk of £10bn or so of debt allowing GSK pharma to reduce borrowings and increase capacity for rapid-fire acquisitions. It will keep a minority interest in Haleon on the grounds that dividend income will enable it to ramp up R&D. 

Pfizer plans to sell down its 32 per cent minority stake in Haleon in a ‘disciplined manner’ starting as soon as the lockdown period – which prohibits sales – ends. 

Transformations do not come cheaply. The biggest winners will be advisers Citigroup, Goldman and Merrill Lynch with the total fees for the demerger and transactions involved amounting to more than £500m. That is almost one-third of the £1.6billion of profit for Haleon in the year ending in March. 

There is much not to like in the shape of bankers’ fees and over-generous remuneration at Haleon. Nevertheless, the demerger should be good for the City. 

The next important task is for Boris Johnson’s limping government to persuade 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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