Shedding the Pounds Through Divestiture

GlaxoSmithKline (NYSE: GSK  ) is cutting the fat -- its weight loss drug alli included. The pharma giant announced yesterday that it plans to sell 19 over-the-counter brands.

It's a somewhat eclectic group from alli to sleep aid Nytol to dietary supplement FiberChoice. But that's kind of the point. Glaxo expects that they're worth more to another company that might have enough critical mass to maximize their potential.

I'm a little surprised that alli fits into that category. Now that it looks like there won't be any competition from prescription drugs in the near future, you would think Glaxo would want to run with the weight loss product. Maybe the company is worried about the risk-reward proposition with a possibility that the product could follow in the footsteps of Abbott Labs' (NYSE: ABT  ) Meridia and get pulled from the shelves.

Sales of the products to be divested brought in about $800 million last year, around 10% of revenue from Glaxo's consumer healthcare division, which made up less than 20% of Glaxo's total revenue. We're not talking about a huge divestiture here.

But, like that sweater from your grandmother, it's the thought that counts. Glaxo is maximizing value for shareholders. It plans to return funds to shareholders through a share buyback or special dividend. And it'll be left with a more focused consumer healthcare division.

Glaxo isn't the only pharma that's figured this out. Pfizer (NYSE: PFE  ) sold off its Capsugel unit earlier this month. sanofi-aventis (NYSE: SNY  ) is looking to sell its dermatology business. AstraZeneca (NYSE: AZN  ) is taking bidders for its dental business. Bristol-Myers Squibb (NYSE: BMY  ) has turned itself into a pure-play drug company after selling or spinning off everything else.

Diversification within a company is nice; it helps smooth out the wrinkles. But I like a company that isn't afraid to sell off what isn't working to help maximize value.

GlaxoSmithKline is a Motley Fool Global Gains recommendation. If you'd like further international investing ideas, click here to grab a copy of the free report "This Stock is Set To Soar As China's First Global Brand Emerges."

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Motley Fool has a disclosure policy. Pfizer is a Motley Fool Inside Value selection. The Fool owns shares of Abbott Laboratories and GlaxoSmithKline. Alpha Newsletter Account, LLC owns shares of Abbott Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


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