Hedge fund Elliott builds multibillion-pound stake in GlaxoSmithKline

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Activist hedge fund Elliott Management has built a multibillion-pound stake in UK drugmaker GlaxoSmithKline, setting up a potential battle over the company’s future after it underperformed peers and lagged behind in the race to develop a Covid-19 vaccine.

The stake taken by Elliott, the $42bn fund known for its campaigns at BHP, SoftBank and Whitbread, was confirmed by people with knowledge of the investment and is a “significant” position, according to one of them. 

Elliott’s investment comes as some GSK shareholders have become disillusioned with the leadership of chief executive Dame Emma Walmsley, who is breaking up the company from next year by separating the consumer health business from its pharma and vaccine division. 

Shares in GSK, which has a portfolio ranging from toothpaste to cancer medicines, are down 14 per cent since Walmsley took up the post in April 2017. Shares in British-Swedish drugmaker AstraZeneca have risen 49 per cent in the same time, while US-based Pfizer is up 16 per cent, with both groups now producing Covid-19 vaccines. 

After the Financial Times revealed Elliott’s investment, GSK shares, which had been trading down on the day, rose 5.7 per cent to £13.63. 

Elliott and GSK, which has a market value of £68.7bn, both declined to comment.

Some leading shareholders have privately expressed concerns over the company’s performance. They have pointed to disappointments in its drugs pipeline, raising questions about its allocation of research and development spending and drawing comparisons with Pascal Soriot’s leadership of AstraZeneca.

Despite missteps over its Covid-19 vaccine, Soriot is seen to have revived the company’s fortunes over the past seven years, in part because of his understanding of the potential of AstraZeneca’s drugs pipeline.

One person familiar with the mood of some GSK shareholders suggested that, although Walmsley was unlikely to be pushed out given the imminent business split, they would prefer her to head the consumer health business — taking advantage of her background in that field — rather than her stated intention of running the demerged pharma business.

Other shareholders backed Walmsley. A top-30 shareholder said the strategy to split the divisions “broadly makes sense”, as did addressing the “unsustainable dividend”, which would free up “capital for inorganic investment in the pipeline”. 

“The CEO is understandably impatient for success but the nature of pharma R&D means it takes a long time to turn such a business around, particularly given the paucity of the legacy she inherited,” the shareholder said. But they warned that the next 12 to 18 months would be critical. 

In an earnings call with analysts in February, Walmsley said 2020 had been “another year of strong progress for GSK, and we’re very confident in building on it in 2021 . . . We remain firmly on track with all our strategic goals.” 

Elliott was founded in 1977 by Paul Singer and has launched dozens of activist campaigns globally. Its London-based European division is run by Singer’s son Gordon. 

The group, which typically uses derivatives to build stakes in target companies, wagered a multiyear campaign at US rare disease specialist Alexion Pharmaceuticals, urging it to sell itself to take advantage of a surge in the valuation of biotech stocks. In December, AstraZeneca agreed to buy Alexion in a $39bn deal.