Glaxo sells Quest stake for £1bn

PHARMA giant GlaxoSmithKline sold its stake in contract research firm Quest Diagnostics for $1.7bn (£1.05bn) yesterday.

The sale buoyed hopes the company would restart a share buyback programme to bolster its share price, following the lead of competitors such as AstraZeneca, which is repurchasing $4bn of stock.

But the sale also freed up cash for Glaxo to pay a £2.2bn net charge imposed on 17 January, resulting from legal disputes going back to 2004.

“Taking the Quest sale in context with GSK’s recently announced legal charge to be taken in its fourth-quarter 2010 earnings, the cash generated is certainly timely,” said Shore Capital analyst Brian White.

Glaxo sold 30.8m shares, equivalent to 18 per cent of Quest, through a public share offering, of which Quest bought half.

After tax, Glaxo is expected to retain $1.1bn of the proceeds.

New York-listed Quest, which has a market cap of about $9.71bn, was a non-core asset Glaxo acquired in 1999, but had been reducing its shareholding for some time.

“We have decided that now is a good time to take advantage of favourable market conditions,” said Glaxo chief financial officer Julian Heslop. He added that the divestment “demonstrates our focus on generating attractive returns for our shareholders and our ability to monetise significant gains when appropriate.”

Glaxo, which has a market capitalisation of about £59.6bn, suspended its share buyback in 2008 and has focused on increasing its dividend and making bolt-on deals, while also working to resolve its legal issues.

Glaxo’s shares closed down 1.52 per cent at £11.29.