Stocks sank toward the end of Tuesday's session, with the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) down more than 1% and the Nasdaq Composite (NASDAQINDEX:^IXIC) tumbling 2.9%.
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Technology shares were hit hard; the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) plummeted 3.7%.
GlaxoSmithKline and Novartis un-swap some assets
British pharmaceutical giant GlaxoSmithKline announced today that it has reached an agreement with Novartis to buy out its 36.5% stake in the consumer healthcare joint venture that was formed in a massive asset swap approved by shareholders in 2014. Glaxo will pay Novartis $13 billion for its portion of the business, which generated $11 billion in revenue last year and has had a 4% compound annual growth rate since 2015. Glaxo stock rose 2.6% on the news and Novartis shares fell 0.3%.
As part of the original deal, which combined the consumer assets of both companies into a joint venture and swapped Glaxo's current portfolio of oncology drugs for most of Novartis' vaccine assets, Novartis was granted an option to sell its stake in the joint venture to Glaxo at a time of its choosing up until March 2035. This "put" option created a lot of uncertainty for Glaxo, which had to maintain a balance sheet that was capable of handling the purchase without knowing the timing or price of the purchase, or even if it would happen at all. Also, as the consumer business grew in value, the liability on Glaxo's books also grew, resulting in large, non-cash charges to earnings. This lopped off almost a billion pounds from Glaxo's profit last year.
Glaxo, which pays a rich 7% yield, expects the deal to be accretive to adjusted earnings in 2018 and beyond and believes it will strengthen operational cash flows. Emma Walmsley, who has been the CEO of Glaxo for about a year, said in the press release that the move will free up capital for other priorities, especially pharmaceutical research and development. For its part, Novartis will soon have a big pile of cash that could potentially fuel acquisitions.
Red Hat turns in yet another big quarter
Cloud software company Red Hat announced fourth-quarter results that exceeded its guidance and analyst expectations, and the stock jumped 7.5% at the opening but ultimately ended the day up 0.9%. Revenue grew 23% to $772 million, compared with the midpoint of its guidance of $760.5 million and the consensus estimate of $762 million. Non-GAAP earnings per share came in at $0.91, after the company had set expectations for $0.81 three months ago.
Subscription revenue grew 22.1%, or 17.9% on a constant-currency basis. The infrastructure segment grew 13.4% in constant currency and revenue from the application development segment soared 33.6%. Red Hat highlighted success in making large deals (as it did last quarter). In Q4 the company closed 169 deals worth more than $1 million, up approximately 50% from the period a year earlier.
Looking forward, Red Hat gave fiscal 2019 revenue guidance that represented growth of 17.9% at the midpoint and non-GAAP EPS growth of 13.9% for the full year, with both figures exceeding analyst estimates. Guidance for Q1 non-GAAP EPS of $0.68 was actually below the analyst consensus of $0.72.
The quarter looked very strong, and given the regularity with which Red Hat beats estimates in the red-hot cloud space, the market took the results in stride.