Big guns back GlaxoSmithKline in war with activist Elliott

Three major investors have backed GlaxoSmithKline’s board amid fears that a US hedge fund is plotting to force through an audacious shake-up of the drugs giant. 

The Mail on Sunday can reveal that BlackRock – GSK’s biggest investor and the world’s largest asset manager – plus its fifth largest shareholder Dodge & Cox, along with Royal London, have all contacted the pharmaceutical firm’s chairman to pledge support ahead of a battle with Elliott Management. 

Speculation is rife that activist Elliott is set to push for a dramatic new plan that could see the FTSE100 firm sold off in parts or swallowed up by a foreign rival. It has even been suggested that a bitter battle could lead to the end of the Glaxo name.

Plot: It has even been suggested that a bitter battle could lead to the end of the Glaxo name

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City sources said shareholders in the £69billion company had urged chairman Sir Jonathan Symonds to stick to the strategy of overhauling its drugs pipeline and splitting the group in two next year. The backing of the trio of investors – particularly BlackRock, which has a gigantic £4billion stake – is a huge boost for GSK’s under-fire management. 

Chief executive Emma Walmsley’s master plan for splitting the company involves spinning off GSK’s consumer healthcare arm, which was formed in a £10billion joint venture with US giant Pfizer. It would then be floated as a separate company. 

After demerging the consumer division – with brands including Sensodyne toothpaste and Panadol paracetamol – GSK would be left as purely a pharmaceuticals and vaccines business. 

Elliott has been keeping quiet about its intentions at GSK since emerging last month as a new multibillion-pound shareholder. But several well-placed bankers and investors told The Mail on Sunday they thought the activist would push for more than simply accelerating Walmsley’s demerger plan. Walmsley has faced criticism for moving too slowly.

 Elliott, founded by Wall Street billionaire Paul Singer, has a reputation for sparking major strategic overhauls after waging successful campaigns against other corporates including yogurt giant Danone, drinks maker SABMiller and hospitality firm Whitbread. 

One top ten investor said: ‘Elliott is in it for a fast buck. That’s its modus operandi. It’s in it for shareholder returns as fast as it can get. Splitting in two more quickly isn’t going to make a difference. If you shake up management, again that will cause a hiatus. 

‘It’s plausible it could be looking to break the company up even more, or get it to merge with another company.’ But the source added: ‘Would the UK Government allow Glaxo to be sold to a foreign company? That’s very unlikely.’ 

A rival activist fund manager said: ‘Elliott has probably got a buyer to do a merger for the pharma business in the States. There will be synergies. It’ll be a mega-cap.’ Another large investor said Elliott was unlikely to want a merger with AstraZeneca, adding: ‘I can’t see the boards being willing to throw in the towel.’ 

Samuel Johar, chairman of executive search firm Buchanan Harvey, said: ‘GSK has been poorly managed for at least 15 years. Therefore, it is not a surprise that an activist like Elliott has arrived at the scene. 

‘I think it is the end of GSK and a great British icon. It is highly likely that it will be broken up and sold. It would be very tragic for the UK.’ 

Senior sources with knowledge of Elliott’s approach played down the idea that it would push for a piecemeal sale or break-up. But they questioned whether speeding up the demerger was ‘technically possible’. 

Walmsley is due to present her long-term outlook to investors on June 23. As head of the world’s largest vaccine maker, she has been criticised for failing to develop a Covid-19 vaccine and instead assisting France’s Sanofi on a jab which has not yet come to market. 

A senior City source said: ‘Glaxo’s plan is all about improving the commercial side, beefing up the drugs pipeline and breaking off the consumer business. They must not get distracted.’ 

Walmsley has been criticised for saying: ‘I’m not a scientist, I’m a business leader.’ But Symonds later defended her. 

Sir Philip Hampton, the former GSK chairman who hired Walmsley, told The Mail on Sunday: ‘She’s strategically strong, but the company is doing a surprising number of challenging deals. That isn’t her main background.’ 

GSK’s shares have fallen 19 per cent since Walmsley took charge in 2017. 

A GSK spokesman said: ‘Our shareholders are keen for us to deliver and we are making good progress.’ 

Elliott, BlackRock, Dodge & Cox and Royal London declined to comment.