GlaxoSmithKline should be split, star investor Woodford says

Neil Woodford (left) tells the BBC's Adam Parsons that his biggest mistake may have been not investing more in tobacco

The UK's biggest drugs company should be split up, says one of Britain's most successful and influential investors.

Neil Woodford said GlaxoSmithKline needs radical restructuring.

The founder of Woodford Investment Management said GSK should be divided into separate companies, rather than run as a single £65bn giant.

In an exclusive interview with Radio 5 live's Wake up to Money he said GSK is so complicated it is "like four FTSE 100 companies bolted together".

And, he says, the pharmaceuticals giant does not "do a particularly good job of managing all of the constituent parts".

On Friday, Glaxo's shares were up 2.5%, outstripping the rest of the market.

Mr Woodford said: "We'd like the business to recognise that it should focus on certain activities in the portfolio and do them better than they have done in the past, demerge the bits they haven't managed particularly well and let other people who specialise in those activities run those businesses."

GlaxoSmithKline is one of the five most valuable companies listed on the stock market.

Breaking it up, in the way Mr Woodford is proposing, would mean the company changing radically and is likely to involve a heated conflict between him and the company's chief executive Sir Andrew Witty.

But Mr Woodford is adamant, insisting "the sum of the parts is worth more than the current share price".

He also launched a robust defence of his long-term support for tobacco companies.

Biggest mistake

Mr Woodford's investment fund owns well over £1bn worth of shares in tobacco companies, but he defends himself against claims that he's endorsing an industry that other investors have shunned.

"I'm paid to exercise investment judgement. I have to look at my investment universe and pick the best investments that I can and expose my investors to those investments and hopefully deliver attractive returns.

"And I have throughout my career believed the tobacco industry offers some very attractive characteristics. Probably, if I were to put my hand up, the biggest single mistake I've made in my career is not having enough tobacco exposure."

Mr Woodford established himself as one of the UK's best-known investors while running funds for Invesco, producing notable returns and establishing them as a mainstay of many people's pensions. He set up his own firm in 2014, and now manages around £14bn of clients' funds.

His reputation is towering. Mark Dampier, research director at the stockbrokers Hargreaves Lansdown, calls him "arguably the greatest fund manager of his generation".

Mr Woodford rarely speaks to journalists - when we meet in his office on the edge of Oxford, it is the first broadcast interview he has given for nearly a year.

China bank crisis

But when he does talk, his opinions hold great sway, backed by a record of successful long-term investment that has drawn comparisons between him and the American billionaire, Warren Buffett.

Mr Woodford is, frankly, downbeat about the prospects for the global economy. "I don't really believe in the consensual view that the world economy is about to leap from the post-crisis world into a new normalised world where interest rates normalise and growth normalises and we all have a better time. I just don't believe in it.

Woodford says Sainsbury's proposed purchase of Home Retail Group does not look "particularly good"

He said the problems of growth, lack of productivity and the threat of deflation "haven't changed at all".

And, he adds, the Chinese economy "is weaker than they admit, with probably a banking crisis round the corner".

Rather than recovering in the coming weeks and months, he expects the Chinese economic issues that have blighted the start of this year to get worse. "It's embarrassing for the authorities there, it's difficult and it's going to be hard to control," he said.

Against this backdrop, Mr Woodford believes the US had made a mistake in raising interest rates, saying that it had been a decision made for symbolic, rather than pragmatic, reasons.

His prediction is that, before the end of the year, America's Federal Reserve will have to back down, and cut its rate back to where it was.

And while many people have predicted an interest rate rise in the UK in the coming months, he said the idea of an increase this year is "ludicrous", saying "the economy could not withstand higher interest rates".

'Flipped, flopped'

He fears a currency crisis on the back of an "awful" trade balance, with the UK consistently importing far more than it sells abroad, but says "there are plenty of economies in a worse state".

Mr Woodford also says there is no convincing economic argument for Britain to either stay, or leave, the European Union, predicting the forthcoming referendum would instead be decided by "the emotional, visceral side of the debate".

As for the state of Europe, Mr Woodford believes that only a huge programme of debt relief will save Greece from a never-ending financial crisis.

He said: "The people who lent the money to Greece made a fundamental error, as did the people who borrowed it, but we will never allow the Greek economy to emerge from this awful situation until we address the issue of debt write-off."

Dressed in jeans and a jumper, he talks freely, with fluency and with the confidence of someone whose portfolio of investments have comfortably and consistently outperformed the stock market.

Sainsbury's proposed purchase of Home Retail Group, which owns Argos and Homebase, "does not look a particularly good deal", the level of personal debt in the UK worries him and he agrees with the Chancellor, George Osborne, that complacency in the UK economy is dangerous and unmerited.

The Bank of England Governor Mark Carney is doing a good job "to some extent… He's flipped and flopped, but he hasn't done anything silly".

Outside his office, a Premier Inn is being built over the road. Unlike most fund managers, he eschews London and instead bases himself on an industrial park outside Oxford, with a staff of 35.

There is, he says, no need to be in London when his clients worry about returns and pensions, not the glitz of a Mayfair office.

His focus is notable and he's renowned for backing his judgment - something that GSK will have to deal with.