Lawyers at pharmaceutical companies are more important than the scientists, runs an old and cynical piece of industry wisdom. The demerger of £24bn consumer healthcare group Haleon from its former parent, GlaxoSmithKline, is proving its truth in spades.
Exhibit A is Haleon’s bill for separating, which has just leaped from £400m to £500m, largely because contracts were written in US dollars rather than (depreciating) sterling. The lawyers aren’t scooping the lot, it should be said, since Haleon also had to get its IT systems on to a separate platform, find itself an office and change a lot of medical labels. But they will have collected the lion’s share of the £100m-ish that relates to admission to London’s stock market.
Exhibit B, though, is where the legal bonanza threatens to run and run. It is the dispute within a dispute over Zantac, the heartburn drug that was vital to the rise of old Glaxo back in the 1980s and and 90s. To recap: GSK, along with various other pharma companies that sold and marketed Zantac, or bought and sold rights, are being sued in a Florida court by claimants who argue their cancers are linked to the product. GSK argues there is no evidence to suggest an increased risk of cancer but maintains that, were courts to establish a liability, it would have some scope to claim against Haleon.
Thus the most significant item in Haleon’s debut half-year numbers was the legal section titled “update on Zantac”, rather than the steady performance of brands such as Panadol and Sensodyne. In short, Haleon said it has rejected the indemnification request from GSK and US group Pfizer, which was the partner in the original joint venture in 2018 that created the now-demerged group. “At that time, neither GSK nor Pfizer marketed OTC [over the counter] Zantac in the US or Canada,” Haleon said. To which GSK quickly replied: “We do not agree with Haleon’s position.” Do not expect a rapid resolution.
The backdrop is the scarily vague estimate by Morgan Stanley’s analysts that Zantac damages, if awarded, could be anywhere up to $45bn (£39.5bn) across the pharma industry. Haleon is down 14% from its day-one demerger price, and GSK by even more in the same period. One can make an argument that both share prices are over-stating the legal risks but it will probably be two years, at least, before clarity emerges. The lawyers’ meters, you can be sure, will tick all the while. For a demerger that was supposed to put a rocket under two FTSE companies, it is a depressing outcome.
Mike Ashley is going nowhere
Mike Ashley is leaving the board of Frasers, the company he founded 40 years ago and brought to the stock market in 2008 as Sports Direct. It is tempting to regard the moment as the end of a retailing era. In reality, it may simply mean that Ashley is bored of board meetings.
His ability to influence and dictate policy won’t be altered one jot by the move. He still owns almost 70% of the shares, making Frasers a private company in all but name. He could sack all the directors if he wished.
Yes, it’s no doubt true that he trusts his son-in-law, Michael Murray, as chief executive; and David Daly is a suitably invisible non-executive chairman. But, if this happy set-up were ever to become unhappy, nobody should doubt who would call the shots.
“I look forward to helping the team as and when they require me,” said Ashley. “My commitment and support as a Frasers’ shareholder is as strong as ever.” In other words, he’s going nowhere. Murray will be “helped” as much as Ashley chooses, one suspects.
By way of flourish, Ashley will also lend the company £100m for reasons that weren’t clear. A possible explanation: if Ashley’s taste for buying stakes in retailing’s stragglers remains undimmed, he only has to make a phone call to say how this extra pot of money should be spent. A revolution probably hasn’t occurred.
Electricity generators feel the pinch
What’s that wailing in the world of electricity generators? It’s companies complaining that they’d rather suffer a windfall tax than be strong-armed into signing new cut-price power deals this winter, reports the Times.
The worry is that new long-term contracts wouldn’t take account of already signed short-term hedging arrangements, which may be a legitimate technical point. But, if the grumbling also suggests the government has entered these “negotiations” with a touch of aggression, that’s encouraging. The terms, if they’re to be worthwhile for the public purse, have to be roughly economically equivalent to a fair windfall tax.
