That way madness lies. So said King Lear--and now, so says top U.K. investor Neil Woodford. Only in Shakespeare, it's Lear who's going crazy, and Woodford is certain that the madness falls squarely on GlaxoSmithKline ($GSK) CEO Andrew Witty and the company's board.
"What did Einstein say? That doing the same thing over and over again and expecting a different result is the definition of madness?" Woodford asked on Tuesday (as quoted by Interactive Investor). "Well, that is what Witty and the board have done for the past 8 years."
Woodford has been by far the most vocal critic of GSK's current strategy, and the loudest advocate for splitting the company into pieces. To his mind, the company runs like four separate publicly traded companies under one roof--and not very well, he adds. Shareholders would be better off if GSK split its diverse operations up and let each focus on what it does best. Right now, Woodford figures, GSK shares are held down by its underperforming pharma business, and the sum of the parts would be worth more than the whole.
Witty has appeared open to the idea of refocusing, what with GSK's big sale-and-swap with Novartis ($NVS) last year; with it, GSK doubled down on vaccines, took control of a major consumer health joint venture and sent its oncology business to Novartis. Just this week, GSK wrapped up a $350 million-plus-milestones deal for Bristol-Myers Squibb's ($BMY) HIV pipeline, in a move to beef up its well-performing ViiV Healthcare J.V.
But on the company's Q4 earnings call, Witty made no bones about any near-term split-ups or spinoffs. Nothing doing, he said; even consumer health, which he thinks could stand alone at some point, wouldn't be in line to go independent for a couple of years at least.
Exactly Woodford's problem: "I heard him say the same thing 8 years ago," Woodford said. "The board and the executive are pursuing the wrong strategy. The results of the past 8 years show that I am right and they are wrong; Andrew Witty is wrong."
Woodford isn't alone in his dissatisfaction. Other activist investors have backed a breakup, and still others have called for Witty to be replaced. Last month, a U.S. hedge fund, Och-Ziff Capital Management ($OZM), not only took issue with the company's direction, but urged Chairman Philip Hampton to clean house. An Och-Ziff source went so far as to say that it's a matter of "when, not if" Witty leaves the CEO job.GSK CEO Andrew Witty
Woodford, however, has said Witty could be fine at running GSK if it was a smaller, better-focused company. And the helmsman has other supporters among GSK's investors as well. Early this year, one top shareholder told the Financial Times that Witty needs a chance to prove his new strategy. "We think it's a bad time to change the captain," the investor said.
For his part, Witty says GSK needs a chance to carry out its current strategy before lurching toward another one. The company is still working to integrate the assets it acquired in the Novartis deal, and its high volume-low cost approach to growth will take some time to play out, he says.
"I think sometimes people think, 'Oh, let's just put together these two massive companies … on Monday, and on Tuesday, let's do something completely different with them,'" the CEO said on last month's Q4 conference call, noting that "if I had to make that call today, I'd stick to what we have," he said.
Plus, Witty and his team see advantages to keeping GSK's operations under one roof. Its vaccines business may appear very different from its pharma division, but the two work better together than apart, vaccines chief Moncef Slaoui recently told FiercePharma. "Separating those parts of the business, I think, would equate to a very, very significant loss of opportunity and a much, much higher cost structure," he said.
- read the Interactive Investor story
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