GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) confirmed this morning that the three-part asset swap deal agreed with Novartis last year has completed.
For GlaxoSmithKline, this means net post-tax profits of $7.8bn and the firm has confirmed that most of this will be returned to Glaxo shareholders, via a 4bn capital return scheme.
In my view, its good news all round and reinforces the buy case for GlaxoSmithKline, which I believe is currently a more attractive buy than its UK peer AstraZeneca.
Short-term cash
In the short term, Glaxo shareholders can look forward to an 82p per share capital return. The company confirmed today that this will take place via a B share scheme.
This means that Glaxo will issue a special class of new shares to shareholders, and then repurchase those shares immediately, leaving each shareholder with a lump sum of cash in their broking accounts that will be treated, for tax purposes, as a capital gain.
At todays share price, Glaxo shareholders should enjoy a total cash yield of nearly 11% on their shares in 2015, when the firms regular dividend is factored in.
Long-term growth
Glaxos transaction with Novartis has three strands, and is designed to strengthen both firms positions in their strongest markets.
Glaxo has locked in a big profit on its Oncology treatments by selling them to Novartis a big player in Oncology for $16bn.
Similarly, Novartis has sold its vaccine portfolio to GlaxoSmithKline, strengthening one of the British firms key divisions. Vaccine sales delivered a 35% operating margin last year, but sales were just 3.2bn from a total of 23bn. Adding a new range of vaccines should enable Glaxo to scale up sales of these very profitable products.
The final element of the deal was for Novartis and GlaxoSmithKline to combine their consumer healthcare divisions.
Among Glaxos current consumer healthcare brands are Panadol, NiQuitin, Aquafresh and Beechams. Novartis has a similar range of popular, strongly-branded products. Although profit margins are lower around 15% these products provide stable long-term income, as consumers tend to be very loyal to particular brands.
A pretty picture
Although GlaxoSmithKline shares are not obviously cheap, on a 2015 forecast P/E of 16.5, the firms 5% regular yield provides a good reason to hold.
I believe the completion of the Novartis deal positions the firm for a new cycle of growth, confirming Glaxos appeal as a long-term buy and hold stock.
I’m not the only Fool who is bullish on Glaxo, either.
The Motley Fool’s market-beating analysts recently selected GlaxoSmithKline as one of their “5 Shares To Retire On“.
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Roland Headowns shares in GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.