Betting on Pfizer merger--or CEO goodbye--traders go bullish on Glaxo

GSK CEO Andrew Witty

Some analysts may be pooh-poohing a Pfizer ($PFE) buyout of GlaxoSmithKline ($GSK), but some investors are hip to the idea. As Bloomberg reports, options traders are paying record prices for bullish GSK options--and this after the British drugmaker lost $11 billion off its market cap in less than three months.

Much of that interest has to do with chatter about a Pfizer takeover, traders told the news service. But it's not the only factor.

There's also some speculation about CEO Andrew Witty, who looks vulnerable these days, what with sales of GSK's top-selling Advair sliding downhill, and follow-up respiratory meds Anoro and Breo so far failing to take up much slack.

"A lot of this is down to rumors about a merger with Pfizer," Tavira Monaco Sam trader Kari Olsen told Bloomberg. "There is also talk that if the CEO does go, the stock can spike up some 10% on the back of people thinking that the company can then start restructuring and sell some assets."

Witty's answer to his Advair predicament, revealed along with first-quarter earnings earlier this month, is high-volume sales of lower-priced products such as vaccines, OTC meds and consumer health staples, such as toothpaste.

Makes sense; the company just doubled down on vaccines and the consumer business in its multibillion-dollar asset swap with Novartis ($NVS). But the idea wasn't popular with some investors, who see that kind of slow, steady growth as, well, too slow.

As Bloomberg notes, an average of 800 Glaxo options changed hands every day in May. That's 17% more than in April--more than double the usual daily amount over the past two years.

Of course, deal talk can be just that. Deutsche Bank analyst Gregg Gilbert suggested last week that GSK might be a nice solution to Pfizer's deal needs; the U.S. company may have failed to snag AstraZeneca ($AZN), but GSK's ability to beef up Pfizer's vaccines and consumer health operations would be worth the effort, Gilbert said in an investor note. Plus, the buy would boost Pfizer's earnings by up to 16% beginning next year.

Gilbert's suggestion touched off debate, of course, with other analysts saying a bid for GSK would be every bit as problematic as Pfizer's failed offer for AstraZeneca. Perhaps more so, even. Louis Capital Markets analyst Ben Kelly now tells Bloomberg that a Pfizer-GSK merger is unlikely for all the reasons the AZ deal didn't make.

"Glaxo is a U.K. national champion--a bid for the company would cause a rehash of all that political and nationalistic furor," Kelly told the news service. "There would also be political pressure against a deal in the U.S. as it's very clear there would be a strong tax-inversion rationale, and we have elections coming up there next year."

- read the Bloomberg story

Special Reports: Top 15 pharma companies by 2014 revenue - Pfizer - GlaxoSmithKline | Pharma's top 10 M&A deals of 2014 - GlaxoSmithKline Oncology/Novartis Vaccines

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