Emma Walmsley is at the starting line. That may sound a churlish assessment of years of graft to get GlaxoSmithKline’s consumer products division fit for demerger this summer, but it’s roughly accurate. The “step-change in growth”, as the chief executive puts it, for the core pharmaceutical division has always been the main event and that race has barely started.
More generously, one can say it was an achievement to avoid stumbles during the warmup stages. Elliott Advisors, the noisy activist in the wings, ultimately proved only a minor distraction. Other shareholders showed no appetite for regime change and backed Walmsley and her strategy. The fact that Unilever put £50bn on the table for the consumer division vindicated the thesis that the Sensodyne-to-Panadol unit is a store of riches (even if the stock market still has to endorse that valuation). GSK’s share price has improved by a third since its sickly level of £12 a year ago.
Yet £20-plus is really a minimum definition of medium-term success given that GSK was at £18 before the pandemic disrupted demand for the group’s bestselling shingles vaccine. It ought to be possible. Wednesday’s bang-in-line numbers for 2021 were accompanied by a forecast of 5%-7% growth in sales in pharmaceuticals this year and 12%-14% in operating profit. Walmsley’s five-year promise was compound rates of 5% and 10% respectively, so it’s on pace.
As ever, though, investors look ahead. Seven potential drugs, including biggies for a respiratory virus, hepatitis B and rheumatoid arthritis, receive critical read-outs from the labs this year, the first big test on Walmsley’s watch of the quality of the pipeline. Further out, she may need a big pharma deal to ignite the next round of innovation – or, at least, that’s the City’s view. But she’s in the hunt. Her position looks as secure now as at any time in the past year.
Arm across the ocean
So much for the idea that Arm Holdings would return in glory to the London Stock Exchange, carried aloft by local investors who regret their former luddite ways. Masayoshi Son, the chief executive of SoftBank, crushed dreams of a happy homecoming for Cambridge’s finest chip designer with a few brutal words on Tuesday: “We think that the Nasdaq stock exchange in the US, which is at the centre of global hi-tech, would be most suitable [for a listing]”.
This twist in the plot, sadly, was always a hazard. SoftBank’s attempt to sell Arm to Nvidia of the US has been slowly collapsing for months, but it was never guaranteed that London would be chosen for an alternative disposal via IPO. Arm was plucked from the UK market in 2016 but sentiment doesn’t count for much. SoftBank is a semi-forced seller and will list the company where it thinks it will secure the highest price. Despite Nasdaq’s wobble in recent weeks, that place is probably still New York.
For the London Stock Exchange – and the chancellor, Rishi Sunak, the cheerleader-in-chief for UK tech – there is a question of how hard to fight to try to persuade Son to re-think. It would be embarrassing to mount a campaign and fail. A secondary listing in London is a feasible runner-up prize, but even that isn’t guaranteed.
Blame Theresa May and Philip Hammond, the prime minister and chancellor in 2016. In their post-Brexit confusion, they blessed Arm’s takeover in exchange for a few loose pledges from SoftBank about jobs and investment in the UK. If they had also insisted that any re-listing of Arm would have to be in London, Son might have signed.
Mutual mystery
A minor miracle must have taken place at Liverpool Victoria. It is only three months since the board of the LV= mutual insurer was telling its members that “significant investment” was needed “to be able to compete effectively in the future”. Since it wouldn’t be fair to use internal capital (because with-profits policies might expire before there was a return on the investment), a takeover by Bain Capital was deemed essential.
Well, the Bain deal was shot down by members and now merger talks with Royal London have failed. But, it turns out, LV= thinks its troubles have evaporated. The performance of the business “has strengthened the board’s belief in, and commitment to, the continuation of our status as an independent mutual,” says Seamus Creedon, the interim chair.
To put it mildly, this claim needs a fuller explanation given previous statements. And the most baffling part of all is that Mark Hartigan, the chief executive and chief advocate for the Bain surrender, is deemed the right boss to lead an independent future. There is a credibility shortfall.
