Are Predators Circling GlaxoSmithKline plc?

It emerged at the beginning of this month that drugs giant Pfizer had approached GlaxoSmithKline (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 Glaxo’s management and the talks are now dead. 

After testing the waters at Glaxo, Pfizer moved on to smaller peer Allergan. The two pharma groups are now having “friendly discussions” about the possibility of a merger. 

However, Pfizer’s 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 Pfizer’s interested, it’s more than likely that other companies are also interested in Glaxo as well…

Fending off offers 

Soon after Glaxo’s management rebuffed Pfizer’s 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 path AstraZeneca took 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 heading in the right direction. According to Glaxo’s management the company has the potential to file up to 20 new drugs with regulators before 2020. Chief executive Sir Andrew Witty said the “breadth and richness” of Glaxo’s pipeline should prove to investors that the company can prosper alone.


Glaxo isn’t the only company in the Big Pharma group that’s struggling to return to growth. France’s Sanofi recently announced that its sales growth would slow to 3% to 4% per annum between 2015 and 2020. Moreover, Sanofi’s management expects little growth in earnings per share for the next two years, similar to Glaxo’s forecast.

Meanwhile, other European peers such as Roche and Novartis are chalking up high-single-digit growth rates, and these two pharma giants could easily boost their sales 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 Novartis are all twice the size of Glaxo with market values of $228bn, $208bn and $235bn respectively. The industry’s largest player Johnson & Johnson is 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 it’s putting up defences against any offer. Pfizer’s 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 within this exclusive wealth report.

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Rupert Hargreaves owns shares of 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.