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GlaxoSmithKline split: a winning strategy?

GlaxoSmithKline split: a winning strategy?
Shareholders seem to like the GSK split proposal, with the price up strongly off the back of the news. But is the strategy as good as it seems? Here are two major considerations for investors.

Emma Walmsley can be forgiven for her previous lack of progress after nearly two years as chief executive of the UK’s biggest pharma company. She’s pulled off a whopper of a deal. Combining GlaxoSmithKline’s (GSK) consumer healthcare division with that of its US peer Pfizer (US: PFE) sounds sensible – both companies have struggled to generate decent returns from their sprawling portfolios. The conglomerate pharma business model seems antiquated in a time when healthcare pioneers are rolling out gene therapies which have the potential to cure cancer.

Investors are undoubtedly pleased, with shares in GSK opening up 7% following the announcement. Many have been calling for a break-up of the company for several years, most notably Neil Woodford who sold his stake last year because of the drug maker’s refusal to consider spinning out the consumer healthcare division. In July, one of the group’s top ten shareholders described the logic of splitting up the business…

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