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ALEX BRUMMER: Haleon's IPO flop damages the London Stock Exchange

ALEX BRUMMER: Haleon is just the latest in a string of IPO flops damaging the London Stock Exchange’s reputation







Haleon’s IPO in the London market, after the consumer healthcare group was spun off from GlaxoSmithKline (GSK), was intended to be a great launch for the FTSE 100.

It would have been a sharp reminder, among others, Masayoshi Son and SoftBank that the city would be a safe place to float Arm Holdings to get the kind of prize its smart chip technology deserves.

Instead, Haleon’s stock price has declined, despite the gleaming collection of consumer healthcare brands, strong cash flows and encouraging valuations from other similar branded companies, including Procter & Gamble and Reckitt Benckiser.

Flop: Haleon's float at the London Stock Exchange was supposed to promote the city as a safe space for company IPOs

Flop: Haleon’s float at the London Stock Exchange was supposed to promote the city as a safe space for company IPOs

Haleon chairman Dave Lewis, who turned the tide in the market at Tesco, and CEO Brian McNamara have a mammoth task if they want to change the minds of investors.

The valuation posted to Haleon in July was £40 billion (including £10 billion in debt loaded on the balance sheet). During trading this week, Haleon was valued at £24.1 billion.

That’s less than half the £50bn price Unilever had placed on the company in January this year.

Whoever leaked details of Unilever’s offer and effectively killed it after investors like Terry Smith opposed the deal, robbed GSK and minority Haleon owner Pfizer of a windfall.

Given Haleon’s current bargain price, one might think Unilever would race back.

But boss Alan Jope was so stung by rejection that the owner of Dove-to-Ben & Jerry’s had little leeway, even if the Takeover Panel rules went their way.

Haleon and GSK are both stung by legal uncertainties, mentioned in the float prospectus, surrounding the manufacturing, sales and marketing of the ulcer and indigestion drug Zantac.

Both companies have strongly rejected claims that Zantac causes cancer, citing extensive investigations by US and European drug regulators.

Plaintiffs faced a setback in Illinois courts this week when Joseph Bayer dropped a claim that he developed esophageal cancer from taking Zantac, for “personal health reasons.”

Developed by GSK, Zantac has been sold over the years by several pharmaceutical giants, including Pfizer and Sanofi, as well as generic drug manufacturers. GSK claimed it did nothing to settle the matter.

Bloomberg reports that generic companies, including Israel’s Teva, Dr. Reddy’s Laboratories and others, agreed to pay the plaintiff $500,000 (£415,000) to avoid going to trial.

But this is just the beginning, with more than 2,000 lawsuits merged into one case that will be heard on September 20 unless a settlement is reached.

The legal burden will likely remain a shadow over Haleon. Unfortunately, the IPO flop is fueling a story – encouraged by stock market duds such as Deliveroo and the Hut Group – that the London Stock Exchange is not fit for purpose when it comes to IPOs.

That is not a good post-Brexit message.

Inflation Tips

If you thought ordinary citizens were suffering from the jump in UK consumer prices to 10.1 per cent, think again.

What about the poor, helpless CEOs of international companies? Do not worry. The brilliant minds of McKinsey have come up with a handy guide on how to deal with it.

Suppliers must redesign products and services to deliver better value.

Chief executives must take over logistics, previously the job of managers lower in the food chain, reform procurement to cut costs and, in tight labor markets, focus on lifestyle needs to retain employees, not just pay.

McKinsey recommends that pricing be set to “strengthen customer relationships.”

That may mean designing products with lower margins. Time investors recognized that companies are not just about profits and dividends.

Reality TV

On the same track, our largest terrestrial broadcaster was punished by the market because CEO Carolyn McCall invested in streaming service ITVX.

But data from regulator Ofcom shows that 16- to 24-year-olds prefer to stream and watch seven times fewer TV broadcasts than people over 65.

If there is a future for the UK’s main commercial broadcaster (besides creation and production), it must invest for the long term. Analysts need to wake up and look at the data.