In her fifth year as GlaxoSmithKline’s CEO, Emma Walmsley could face a serious challenge from aggressive activist investor Elliott Management. But three major shareholders have now pledged their support to the British drugmaker’s board and exec team.
BlackRock, GSK’s largest investor, and investment management shop Dodge & Cox—its fifth-largest shareholder—plus U.K.’s Royal London have all contacted GSK Chairman Jonathan Symonds, throwing their weight behind the current team in a potential proxy fight against Elliott, The Mail has reported.
It came off Elliott taking a “significant” position in GSK earlier this year, sparking speculation that the intimidating activist investor owned by Paul Singer would push for a major shakeup that could see the British pharma split up further or be subsumed by a U.S. rival.
Elliott hasn’t made its intentions clear, and it didn’t make a move at GSK’s annual shareholders meeting on May 5; all 22 resolutions were approved at the meeting with more than 93% of investor support, including the exec team’s compensation plan and re-election of Symonds and Walmsley.
GSK’s currently in the process of splitting into two companies as part of an overhaul Walmsley launched in late 2018. With a planned spinoff, the consumer health business—which Walmsley used to head before becoming the group’s CEO in 2017—will go solo. The goal is to focus the new GSK solely on pharmaceutical products and vaccines.
One theory suggests that Elliott intends to speed up the separation. But with a target spinoff date in mid-2022, there simply isn’t much room for further acceleration.
Several “well-placed bankers and investors” suspect Elliott might seek further division along the lines of the drug and vaccine franchises, or press for a sale of the company, according to The Mail.
The hedge fund has in the past taken aim at several biopharma companies, including most recently, Alexion Pharmaceuticals, which just sold itself to AstraZeneca. Elliott reportedly advocated for a split-up at Allergan before AbbVie agreed to acquire the Botox maker in 2019.
“It's plausible it could be looking to break the company up even more, or get it to merge with another company,” one top ten GSK investor said of Elliott’s potential plan, as quoted by The Mail.
Another possibility is that Elliott might want to force a revamp of GSK’s exec team. Some investors would prefer Walmsley to head the outgoing consumer health business rather than the remaining drug franchise, The Financial Times previously reported, citing one person familiar with the sentiment among some GSK shareholders.
Walmsley has infused GSK with a renewed focus on oncology with its $5.1 billion buyout of Tesaro. But recent setbacks, including the late-stage failure of the Merck KGaA-partnered bintrafusp alfa, have some industry watchers concerned about the company’s ability to deliver on long-term prospects.
Walmsley has defended her position as CEO in the wake of Elliott’s share buildup. “I’m not a scientist. I’m a business leader, and I believe that the priorities as the CEO are to set the strategy … hire the people, and included in that has been hiring the best possible R&D leadership in the world,” she told reporters in April during a press conference about the company’s first-quarter performance, as quoted by The Financial Times.
Walmsley’s now scheduled to provide what she called “a clear view of the strategy for new GSK” at an upcoming investor event next month. The company will clarify its target therapeutic areas for investment, provide deep dives into potential growth drivers, offer more details on the approach of the consumer health separation, as well as produce a revenue outlook for the next 10 years, she told investors during a conference call in April.
“We're very aware that GSK shares have underperformed and will demonstrate how we are building shareholder value in new GSK,” she said. “With the foundation of deep change in progress made in the last few years, we believe we've developed a compelling vision and outlook to share with you.”