Investor Elliott wants GSK leadership settled before split

Activist investor Elliott said GlaxoSmithKline (GSK.L) should review its leadership and consider a sale of its consumer healthcare business as it confirmed on Thursday that it had taken a significant stake in the British pharmaceuticals group.

GSK last week set out plans for a separate listing next year of the consumer health business, which includes brands such as Sensodyne toothpaste and Advil painkillers, in the biggest shake-up for the company in two decades.

In a strongly worded letter to the GSK board, setting out five recommendations to tackle what it called years of underperformance, Elliott raised the pressure on Chief Executive Emma Walmsley while endorsing the planned split.

The hedge fund said GSK should add pharmaceutical and scientific expertise to its board and then decide who should run the two businesses, looking at internal and external candidates.

“Elliott strongly believes that the future CEOs of New GSK and CH must have the skillsets and expertise to match their respective tasks at hand,” adding that existing management should remain in place for now.

Elliott’s response had been awaited after reports in April that it had taken a multi-billion pound stake.

“Despite possessing strong businesses in attractive markets, GSK has failed to capture business opportunities due to years of under-management,” Elliott said.

SEPARATION PLANNED

In its initial response, GSK said Elliott was raising “legacy issues”.

GSK’s “ambitious” plan was set out to realise significant value over the next decade, a spokesperson for the British company said.

“We believe our shareholders are supportive of this strategy, and that they are focused on GSK executing on it without distraction or delay. This is our clear priority,” they added, saying a more detailed response would follow.

The split will allow GSK to focus on its core drugs and vaccines business, which has been hit by a lack of fast-growing products and patients deferring treatments due to the COVID-19 pandemic, weighing on its shares.

Walmsley, who has led GSK since 2017, said last week that GSK shares had underperformed for a long period and that she planned to stay on to lead the pharma and vaccines business.

The shares were up around 0.7% on Thursday.

“Our analysis suggests that GSK has an opportunity to generate up to 45% upside in its share price in the lead-up to its full separation, and much more in the years beyond,” Elliott said.

It also urged GSK to look at a full sale of the consumer health business, a joint venture with Pfizer (PFE.N), should the opportunity arise and grant the vaccines business more autonomy within new GSK.

“Providing vaccines more autonomy could increase its talent retention and nimbleness … maintaining separate divisional reporting for vaccines will allow investors to appropriately value GSK’s crown jewel vaccines business,” Elliott said.