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Below is a summary of Elliott’s proposals.
ENSURING ‘RIGHT’ LEADERSHIP
Elliott wants GSK to appoint non-executive directors with deep biopharma and consumer healthcare expertise prior to a separation of the consumer business expected in mid-2022.
The fund wants GSK’s reinforced board to run “robust processes” for selecting leadership for the two new companies created by the split, considering both internal and external candidates. Elliott said it was also prepared to share a list of candidates it had identified.
INCENTIVISATION OF TARGETS
The fund said the portion of GSK’s compensation plan linked to financial targets should be “substantial.”
GSK’s outlook to increase sales by more than 5% a year to 2026 and for a more than 10% increase in operating profit should be the base for considering bonuses, it said.
Elliott also suggested GSK should explore linking part of the compensation to longer-term guidance for executives.
PROFITABILITY AND INVESTMENTS
Elliott endorsed New GSK, the pharmaceuticals business, prioritising investments in its pipeline, adding that such an approach should continue along with the “much-needed” cost-savings plan being implemented.
“New GSK’s profitability target of more than 30% operating profit margins by 2026 is a welcome step in the right direction. However, it does not go far enough,” Elliott said.
It recommended that New GSK target a 32% operating profit margin by 2026.
OPENNESS TO OPTIONS
Elliott said there were high potential synergies for some transactions, including a sale of the consumer business, adding that GSK should remain open to the possibility of shifting away from its current plan.
“Any strategic opportunity for the sale of CH consumer health) should be diligently pursued and accompanied by a clear plan for how GSK will use the proceeds,” the investor said, urging GSK to “impartially” consider opportunities.
VACCINES AND PHARMA
Elliott said New GSK’s vaccines and pharmaceuticals businesses should not be fully integrated because it was not convinced of “clear synergies” between the two.
Providing the vaccines division more autonomy could increase talent retention and “nimbleness,” Elliott said, adding that a separate divisional reporting structure would allow investors to appropriately value GSK’s “crown jewel” vaccines unit.
Elliott made clear that it was not recommending a sale of the vaccines business, the world’s leader by revenues.
