GlaxoSmithKline, Pfizer to Form New Consumer Healthcare Joint Venture

GlaxoSmithKline has reached agreement with Pfizer to combine their consumer health businesses into a new Joint Venture, with combined sales of approximately $12.7 billion. GSK will have a majority controlling equity interest of 68% and Pfizer will have an equity interest of 32% in the Joint Venture.

The combination will bring together two portfolios of consumer health brands, including GSK’s Sensodyne, Voltaren and Panadol and Pfizer’s Advil, Centrum and Caltrate. The Joint Venture will have a market share of 7.3% ahead of its nearest competitor at 4.1% and have number 1 or 2 market share positions in all key geographies, including the US and China.

The Joint Venture is expected to generate total annual cost savings of £0.5 billion by 2022 for expected total cash costs of £0.9 billion and non-cash charges of £0.3 billion. Planned divestments targeting around £1 billion of net proceeds are expected to cover the cash costs of the integration. Up to 25% of the cost savings are intended to be reinvested in the business to support innovation and other growth opportunities. Overall the Joint Venture will target an Adjusted operating margin percentage in the ‘mid-to-high 20’s’ by 2022.

GSK expects the proposed transaction to be accretive to Total earnings in the second full year following closing, reflecting the impact and timing for the costs of integration; and to be accretive to Adjusted earnings and free cash flow in the first full year after closing

Within 3 years of the closing of the transaction, GSK intends to separate the Joint Venture via a demerger of its equity interest and a listing of GSK Consumer Healthcare on the UK equity market. Over this period, GSK will complete the integration and expects to make continued progress in strengthening its Pharmaceuticals business and R&D pipeline.

The intended separation of the Group will allow the two resulting companies to be established with appropriate capital structures for their future investment needs and capital allocation priorities. The new consumer healthcare company with its more durable cash flows will be able to support higher leverage levels than the GSK Group today, creating the opportunity on separation to reduce the leverage in the new Pharmaceuticals/Vaccines company.

"Eighteen months ago, I set out clear priorities and a capital allocation framework for GSK to improve our long-term competitive performance and to strengthen our ability to bring new breakthrough medicines and better healthcare products to people around the world. We have improved our operating performance and have set out a new approach to R&D," Emma Walmsley, Chief Executive Officer, GSK, said. "We have also started to reshape the Group’s portfolio through prioritization of R&D programs, acquisitions such as that proposed with the oncology biopharmaceutical company, TESARO, the minority buy-out of the consumer healthcare business and a series of non-core product divestments."

The proposed transaction is subject to approval by GSK shareholders and conditional upon the receipt of certain anti-trust authority approvals. Subject to these approvals, the transaction is expected to close in the second half of 2019. The Board intends to recommend that shareholders vote in favor of the proposed transaction.

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