GLAXOSMITHKLINE

• Reading a piece from Exane on the AstraZeneca and the index implications.
• They are saying the new entity as most people think will be UK incorporated holding company and to be listed on the New York Stock Exchange. If the deal goes ahead Astra will leave most of the European Indices. (FTSE UK (FTSE All Share, 350 and 100), FTSE All World Europe, MSCI Standard Europe, STOXX Europe 600.)
• If the deal completes EAFE, European and UK Index fund managers (i.e. not being exposed to US stocks) are likely to sell their shares, which could create a significant supply on AZN shares that would materialise at the UK close.
• I think the deal will complete as it is very accretive to Pfizer. They will bump the deal in overall terms or through increasing the cash component. I actually think they will end up doing both.
• This will leave GSK as the only pure pharma play in the FTSE and other indices.
• GSK is trading where it is due to awful sentiment and rightly so due to Corruption issues and the recent manufacturing issues at the Irish API plant.
• GSK however has many options to unlock value from reorganisation to spin-offs. An article in the Economist even mentions a take over from Novartis. Although unlikely it just shows what options they have.
• There is not much positive noise around GSK right now but when the AZN/PFE deals go through eyes and flows will turn back to GSK. It will not take much to make them attractive again. Sentiment is low.
• The money will go somewhere and GSK has to be the number 1 candidate. This with the continued pharma bull market, multiple options open to GSK and a 5% yield makes GSK very attractive right now.