Earlier this week, Reckitt Benckiser gave GlaxoSmithKline an open shot at Pfizer’s up-for-sale OTC unit by withdrawing from deal talks. But that’s a shot GSK won’t be taking.
The British drugmaker, considered the leader in the race for the division, said Friday that it would drop out, too.
“While we will continue to review opportunities that may accelerate our strategy, they must meet our criteria for returns and not compromise our priorities for capital allocation,” CEO Emma Walmsley said in a statement.
The move has some shareholders breathing a sigh of relief. One group of investors has worried about a big deal cutting into the company’s dividend, especially because Walmsley had refused to confirm that dividends would remain untouched if Glaxo went after the Pfizer asset. And another group never approved of GSK’s focus on low-margin consumer health in the first place.
GSK's move increases the likelihood that Pfizer, which expects to decide this year on the unit’s fate, will hang on to the portfolio. It's "tough to dance without a partner," Credit Suisse analyst Vamil Divan, M.D., wrote in a Friday note to clients, noting that the company could also choose to spin the unit off.
The all-but-certain lack of a sale is an outcome at least one analyst predicted before GSK’s announcement Friday.
“There’s a low probability that they execute the transaction,” Suntrust analyst John Boris wrote in a note seen by Bloomberg, adding that, thanks to store-brand generic alternatives and online sales from retailers such as Amazon, the “brand cachet” of OTC products such as Pfizer’s Advil or Centrum “is being eroded.”
“The margins are there but the question is, are you going to be able to grow the franchise?” he wrote.
Pfizer’s price tag wasn’t low, either. The New York drugmaker had reportedly been attempting to drum up more than $20 billion, a figure that may have scared off former suitors Johnson & Johnson and Nestle, in addition to GSK and RB.