It emerged at the beginning of this month that drugs giantPfizerhad approachedGlaxoSmithKline(LSE: GSK) about a possible takeover sometime during October. According to the Financial Times, Pfizer had looked seriously at GlaxoSmithKline as a potential target,but the US group had received a cold reception from Glaxos managementand the talks are now dead.
After testing the waters at Glaxo, Pfizer moved on to smaller peerAllergan. The two pharma groups are now having friendly discussions about the possibility of a merger.
However, Pfizers interest in Glaxo has sparked a very interesting debate. Indeed, many City analysts and key investors are now starting to wonder if another member of the Big Pharma club will make an offer for Glaxo.
If Pfizers interested, its more than likely that other companies are also interested in Glaxo as well
Fending off offers
Soon after Glaxos management rebuffed Pfizers approach, the company revealed the details of dozens of new drugs that it has under development, which the group says will help drive its recovery the same pathAstraZenecatook when it turned down an approach from Pfizer last year.
Glaxo unveiled 40 experimental treatments and vaccines for conditions ranging from cancer and HIV to asthma and shingles. The new treatment showcase was an attempt to convince investors that Glaxo is headingin the right direction. According to Glaxos management the company has the potential to fileup to20 new drugs with regulators before 2020. Chief executive Sir Andrew Witty said the breadth and richness of Glaxos pipelineshould prove to investors that the company can prosper alone.
Glaxo isnt the only company in the Big Pharma group thats struggling to return to growth.FrancesSanofirecently announced that its sales growth would slow to 3% to 4% per annum between 2015 and 2020. Moreover, Sanofis management expects little growth in earnings per share for the next two years, similar to Glaxos forecast.
Meanwhile, other European peers such asRocheandNovartisare chalking uphigh-single-digit growth rates, and these two pharma giants could easily boost theirsales base by buying either Glaxo or Sanofi.
In dollar terms, Glaxo is one of the smallest of the Big Pharma group with a market cap of $100bn. Roche,Pfizer, and Novartisare all twice the size of Glaxo with market values of $228bn, $208bn and $235bn respectively. The industrys largest playerJohnson & Johnsonis nearly three times the size of Glaxo with a market value of $280bn.
Is a takeover coming?
So, is Glaxo about to be taken over by a larger peer? Well, the company certainly looks as if its putting up defences against any offer. Pfizers interest in the company certainly signals that potential buyers are prepared to make an offer for Glaxo. Although, it remains to be seen what sort of price will be offered and how long it will take for an offer to emerge.
Nonetheless, whether an offer emerges for the company or not,Glaxo’s defensive nature, robust cash flows and impressive dividend yield (5.8%) makes the company the perfect long-term buy and forget share. And as well as Glaxo, I’m considering investing in several of the five FTSE shares highlighted withinthis exclusive wealth report.
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