Over the past week we have seen shares in GlaxoSmithkline squeeze higher from around 1,450p to 1,520p as rumours on City desks abound that there will be significant corporate action here. There are also rumours that there is a FTSE 100 company in play as a takeover. Could Glaxo be the one?
For drugs giant Glaxosmithkline, it would appear that advisors having explored all options, the company is preparing a defence strategy. This is something which is rumoured could involve a breakup of the group which for too long has used a chunky 5% dividend to assuage its shareholders.
Given the way that the shares are trading near 52 week lows, the company is vulnerable to external interest for parts or even the whole sprawling business. The names in the fray who could be looking at Glaxo either individually or in concert include Roche, Novartis, Johnson & Johnson and Pfizer.
The M&A Markets blog contacted both advisors and companies said to be interested in Glaxo and they have neither confirmed nor denied the M&A rumours.
In terms of what the potential valuation of Glaxo may be, a £19 a share deal could be on the cards, although a sum of parts estimate stretches as high as £25. Clearly, under £15 and the UK FTSE 100 company is a value play at the very least, and a sitting duck to suitors at the other end of the scale.
As far as current City calls on the stock we have Oddo BHF leading the recent upgrades with a £21 target, while Liberum are on £19 and HSBC on £20.
All of the alleged shenanigans associated with Glaxo are coming even as the group has a solid looking drugs pipeline. Nevertheless, some of the City’s top investment banks are considering who, what and how rivals could make a move here?
One scenario which fits very well is that a US activist investor could be attempting to buy itself a 5% stake as a way of forcing change at Glaxo. This is something which Glaxo is aware of and will be attempting to address before it is too late.
Looking at the charting position of GSK it can be seen that the stock has over the past 10 days not only broken a bullish falling wedge pattern, at 1,480p, the 50 day moving average at 1,502p, but done all of this accompanied by positive RSI divergence. The implied initial technical target here is the 200 day moving average at 1,592p over the next 2-4 weeks – especially while the stock holds above the 50 day line on an end of day close basis. Only back below 1,480p would question the recovery argument.
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