38. Acquisitions and disposals
Details of the acquisition and disposal of significant subsidiaries and associates, joint ventures and other businesses are given below:
2017
Business acquisitions
There were no business acquisitions during 2017.
Business disposals
GSK made a number of small business disposals during the year for a net cash consideration of £342 million, including contingent consideration receivable of £86 million. The profit on disposal was determined as follows:
| Total | ||||
| £m | ||||
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Consideration including currency forwards and purchase adjustments |
342 | |||
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Net assets sold: |
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Goodwill |
(16 | ) | ||
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Intangible assets |
(21 | ) | ||
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Property, plant and equipment |
(18 | ) | ||
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Inventory |
(11 | ) | ||
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Cash and cash equivalents |
(6 | ) | ||
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Other net assets |
(5 | ) | ||
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| (77 | ) | |||
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Transaction costs |
(8 | ) | ||
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Reclassification of exchange from other comprehensive income |
(100 | ) | ||
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Profit on disposal |
157 | |||
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Investment in associates and joint ventures
During the year, GSK made cash investments of £15 million into associates and joint ventures. In addition, GSK sold its holdings in two associates for £198 million in cash.
| Total | ||||
| £m | ||||
|
Cash consideration |
198 | |||
|
Net book value of shares |
(92 | ) | ||
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Reclassification of exchange from other comprehensive income |
(7 | ) | ||
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Transaction costs |
(5 | ) | ||
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Profit on disposal |
94 | |||
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Cash flows
| Associates | Associates | |||||||||||
| Business | and JV | and JV | ||||||||||
| disposals | investments | disposals | ||||||||||
| £m | £m | £m | ||||||||||
|
Cash consideration |
256 | (15 | ) | 198 | ||||||||
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Net deferred consideration received |
39 | — | — | |||||||||
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Cash and cash equivalents divested |
(6 | ) | — | — | ||||||||
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Transaction costs paid |
(7 | ) | — | (2 | ) | |||||||
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Cash inflow |
282 | (15 | ) | 196 | ||||||||
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2016
Business acquisitions
GSK completed two small business acquisitions during 2016.
Cash consideration of £24 million was paid in the year to acquire the HIV R&D preclinical and discovery stage portfolio from Bristol Myers Squibb. Further consideration, contingent on commercial milestones and future sales performance, may be due, and an initial estimate of £40 million was recognised for this contingent consideration. Intangible assets acquired were valued at £57 million and goodwill of £7 million was recognised.
GSK formed Galvani Bioelectronics Limited during the year and acquired intangible assets of £45 million and cash and cash equivalents of £41 million from Verily Life Sciences LLC in return for a 45% shareholding in Galvani Bioelectronics. The fair value of this shareholding was £47 million, and GSK also recognised a credit of £39 million in non-controlling interests representing Verily’s share of the net assets it contributed.
Business disposals
GSK also made a number of small business disposals in the year for net cash consideration of £72 million. In addition, deferred consideration receivable of £43 million was recognised.
Cash flows
| Business | Business | |||||||
| acquisitions | disposals | |||||||
| £m | £m | |||||||
|
Cash consideration (paid)/received after purchase adjustments |
(24 | ) | 72 | |||||
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Cash and cash equivalents acquired |
41 | — | ||||||
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Cash inflow |
17 | 72 | ||||||
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In addition, GSK made cash investments of £11 million into associates and joint ventures.
2015
Business acquisitions
Novartis Consumer Healthcare and Vaccines businesses
The three-part inter-conditional transaction with Novartis AG involving the Consumer Healthcare, Vaccines and Oncology businesses completed on 2 March 2015.
GSK and Novartis have contributed their respective Consumer Healthcare businesses into a Consumer Healthcare Joint Venture in a non-cash transaction. GSK has an equity interest of 63.5% and majority control of the Joint Venture. In addition, GSK has acquired Novartis’ global Vaccines business (excluding influenza vaccines) for an initial cash consideration of $5.25 billion (£3.417 billion) with contingent consideration representing subsequent potential milestone payments of up to $1.8 billion (£1.2 billion) arising on the achievement of specified development targets and ongoing royalties based on the future sales performance of certain products, and so the total amount payable is unlimited. The first milestone of $450 million (£300 million) was paid on 26 March 2015.
Other business acquisitions
In addition, GSK completed one smaller Vaccines business acquisition for cash consideration of £120 million, net of cash acquired, and the fair value of existing investments of £15 million. This represented goodwill of £22 million and intangible assets of £124 million less other net liabilities of £11 million.
The fair values of the assets acquired in business combinations, including goodwill, are set out in the table below.
| Novartis | ||||||||||||
| Consumer | Novartis | |||||||||||
| Healthcare | Vaccines | |||||||||||
| business | business | Other | ||||||||||
| £m | £m | £m | ||||||||||
|
Net assets acquired: |
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|
Intangible assets |
6,003 | 2,680 | 124 | |||||||||
|
Property, plant and equipment |
249 | 434 | 1 | |||||||||
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Inventory |
257 | 347 | — | |||||||||
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Trade and other receivables |
400 | 162 | 2 | |||||||||
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Other assets including cash and cash equivalents |
304 | 283 | 19 | |||||||||
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Trade and other payables |
(402 | ) | (107 | ) | (3 | ) | ||||||
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Deferred tax liabilities |
(1,154 | ) | (78 | ) | (26 | ) | ||||||
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Other liabilities |
(165 | ) | (299 | ) | — | |||||||
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| 5,492 | 3,422 | 117 | ||||||||||
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Non-controlling interest |
(2,150 | ) | (19 | ) | — | |||||||
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Goodwill |
774 | 576 | 22 | |||||||||
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| 4,116 | 3,979 | 139 | ||||||||||
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Consideration settled by shares in GSK Consumer Healthcare Holdings |
4,116 | — | — | |||||||||
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Cash consideration paid after purchase adjustments |
— | 3,461 | 124 | |||||||||
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Fair value of equity investment disposal |
— | — | 15 | |||||||||
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Contingent consideration |
— | 594 | — | |||||||||
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Deferred tax on contingent consideration |
— | (52 | ) | — | ||||||||
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Loss on settlement of pre-existing relationships |
— | (24 | ) | — | ||||||||
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Total consideration |
4,116 | 3,979 | 139 | |||||||||
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The non-controlling interest in the Consumer Healthcare Joint Venture, calculated applying the full goodwill method, represents Novartis’ share of the net assets it contributed to the Joint Venture together with attributable goodwill.
The goodwill in the businesses acquired represents the potential for further synergies arising from combining the acquired businesses with GSK’s existing businesses together with the value of the workforce acquired. The majority of the goodwill recognised is not expected to be deductible for tax purposes.
Total transaction costs recognised in 2014 and 2015 for the acquisitions from Novartis amounted to £102 million.
Between 2 March 2015 and 31 December 2015, turnover of £1,941 million arising from the Novartis Consumer Healthcare and Vaccines businesses was included in Group turnover. If the businesses had been acquired at the beginning of the year, it is estimated that Group turnover in 2015 would have been approximately £320 million higher. These businesses have been integrated into the Group’s existing activities and it is not practical to identify the impact on the Group profit in the period.
Business disposals
Oncology
GSK has divested its marketed Oncology business, related R&D activities and rights to its AKT inhibitor and also granted commercialisation partner rights for future oncology products to Novartis for consideration of $16 billion (£10,395 million) before purchase adjustments.
Other business disposals
GSK also made a number of small business disposals in the period for net cash consideration of £309 million. Profit on disposal of the businesses has been determined as follows:
| Oncology | Other | |||||||
| £m | £m | |||||||
|
Cash consideration including currency forwards and purchase adjustments |
10,060 | 309 | ||||||
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Net assets sold: |
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Goodwill |
(497 | ) | (14 | ) | ||||
|
Intangible assets |
(516 | ) | (107 | ) | ||||
|
Property, plant and equipment |
— | (25 | ) | |||||
|
Inventory |
— | (51 | ) | |||||
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Cash |
— | (5 | ) | |||||
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Other net assets |
— | (6 | ) | |||||
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| (1,013 | ) | (208 | ) | |||||
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Loss on currency forwards booked in 2014 |
299 | — | ||||||
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Disposal costs |
(118 | ) | (21 | ) | ||||
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Profit on disposal |
9,228 | 80 | ||||||
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Associates and joint ventures
During the year, GSK made cash investments of £16 million into associates and joint ventures. In addition, in March 2015, GSK sold half of its shareholding in Aspen, representing 6.2% of the issued share capital of the company, for £571 million in cash. As a result of the sale, the Group was no longer considered to have the ability to exert significant influence over Aspen and the Group’s remaining investment was transferred from Investments in associates to Other investments.
| £m | ||||
|
Cash consideration |
571 | |||
|
Net book value of shares |
(143 | ) | ||
|
Reclassification of exchange from other comprehensive income |
(30 | ) | ||
|
Transaction fees |
(7 | ) | ||
|
Other items |
(5 | ) | ||
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Profit on disposal |
386 | |||
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Cash flows |
Business acquisitions £m |
Business disposals £m |
Associates and JV disposals £m |
Total £m |
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|
Cash consideration (paid)/received after purchase adjustments |
(3,585 | ) | 10,369 | 571 | 7,355 | |||||||||||
|
Cash and cash equivalents acquired/(divested) |
404 | (5 | ) | — | 399 | |||||||||||
|
Deferred cash proceeds |
— | (38 | ) | — | (38 | ) | ||||||||||
|
Contingent consideration paid |
(338 | ) | — | — | (338 | ) | ||||||||||
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Transaction costs and other |
(22 | ) | (80 | ) | (7 | ) | (109 | ) | ||||||||
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Cash (outflow)/inflow |
(3,541 | ) | 10,246 | 564 | 7,269 | |||||||||||
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