GlaxoSmithKline's potential proxy brawl with activist Elliott has U.K. officials worried: report

Emma Walmsley
Several prominent investors pledged their support for GSK's board and executive team last week. (GlaxoSmithKline)

GlaxoSmithKline's fate has looked uncertain ever since aggressive activist investor Elliott Management took a major stake in the U.K.-based pharma last month. Now, after winning the support of several prominent investors, GSK has the British government watching its back. 

The U.K. government has asked officials to keep a close eye on Elliott Management’s plans for GlaxoSmithKline, fearing the activist investor could push to split up the company or have it subsumed by a U.S. rival, The Times reports. Meanwhile, Kwasi Kwarteng, Britain’s secretary of state for business, energy and industrial strategy, is believed to have asked officials to lend their support to GSK CEO Emma Walmsley.

Elliott, which has a history of prompting shake-ups at biopharmas such as Alexion, took a “significant” position in GSK last month, leading to widespread speculation about the investor’s intent. The move coincided with an ongoing restructuring initiated by Walmsley, which will split GSK into two companies—one focused on biopharma and the other on consumer health.

Elliot has apparently met with GSK shareholders and told them, "change is coming," The Times reports. GSK declined to comment on the situation.

RELATED: Activist investor blasts Alexion's $1.4B Portola buy in scathing open letter

Concerns are mounting that Elliot could agitate for a sale of the entire group or push for a further division of GSK's pharmaceuticals or vaccines units, though certain analysts and investors have ruled that scenario unlikely given the potential political fallout, according to The Times. 

Business secretary Kwarteng, for his part, has asked officials to support Walmsley's ongoing restructuring plan, the British daily said.

Walmsley is facing pressure to right the ship at Glaxo, which has suffered a string of setbacks throughout 2020 and early 2021. The company recently halted a phase 2 trial of its immuno-oncology hopeful feladilimab, which it's testing with Merck's Keytruda in head and neck squamous cell carcinoma.

GSK has also stumbled in its efforts to develop COVID-19 vaccines, though its fortunes may be turning on that front. Last week, the company rolled out positive data on two separate shots it's working on with Sanofi and Quebec's Medicago. 

RELATED: Activist investor Elliott's latest target? A 2-way split at struggling Bayer: report

Meanwhile, this isn't uncharted territory for the British government. The spotlight on Elliott's investment was triggered by a mechanism introduced after Pfizer's troubled bid to acquire AstraZeneca in 2014.

Pfizer repeatedly upped its ante for AZ, which the British pharma deflected at every turn. The failed takeover sparked political and public opposition from Brits concerned about jobs and in-country R&D. 

“If there is any suggestion of a takeover, the government will have to intervene because of wider public interest," said Vince Cable, the former business secretary who had a key role in the U.K.'s response to Pfizer's £69 billion takeover attempt, as quoted by The Times. 

Glaxo, like AstraZeneca, is a "major pillar" of the U.K.'s pharma industry, he noted. Unions have also raised flags about the effects of a potential break-up or sell-off on local jobs. Meanwhile, the U.K.'s National Security and Investment Act 2021 came into effect last month. The law is meant to strengthen the government's ability to intervene in M&A and other deals that could pose a threat to national security. 

The government backing for GSK comes just a few days after a slate of prominent investors threw their weight behind the company's board and executive team. Glaxo's largest investor, BlackRock, and its fifth-largest shareholder, Dodge & Cox, plus U.K.’s Royal London, have all contacted GSK Chairman Jonathan Symonds to pitch their support in the potential proxy brawl with Elliott, The Mail reported last week.