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 The revamp is the boldest move yet by GSK Chief Executive Emma
Walmsley, who took over last year.
It will lead to the creation of a consumer health giant with a
market share of 7.3 percent, well ahead of its nearest rivals
Johnson & Johnson, Bayer and Sanofi, all on around 4 percent.
Walmsley has previously played down the idea of breaking up the
group, something that a number of investors have called for over the
years.
On Wednesday, however, she announced that GSK and Pfizer would
combine their consumer health businesses in a joint venture with
sales of 9.8 billion pounds ($12.7 billion), 68 percent-owned by the
British company, in an all-equity transaction.
GSK said the deal laid the foundation for the creation of two new
UK-based global companies focused on pharma/vaccines and consumer
healthcare within three years of the transaction closing.
For Pfizer, the deal resolves the issue of what to do with its
consumer health division, which includes Advil painkillers and
Centrum vitamins, after an abortive attempt to sell it outright
earlier this year.
GSK, whose consumer products include Sensodyne toothpaste and
Panadol painkillers, had withdrawn from that earlier Pfizer auction
process but Walmsley said the opportunity to strike an all-equity
deal cleared the way for the new agreement.
"It's something we've been able to do quickly and quietly," she told
reporters in a conference call.
"What this deal is all about is the opportunity to strengthen two
businesses -- a world-leading consumer healthcare business and a new
GSK that is focused on pharma and vaccines."
CRYSTALLIZING VALUE
Shareholders welcomed the news and the shares jumped 7 percent, with
Jefferies analysts saying the future separation could crystallize
value.
The new joint venture with Pfizer is expected to generate total
annual cost savings of 500 million pounds by 2022 for expected total
cash costs of 900 million and non-cash charges of 300 million. GSK
plans divestments of some 1 billion pounds.
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Walmsley said there would be an inevitable impact on jobs but there
was also an opportunity for cost savings in procurement and across
the supply chain.
The Pfizer deal is expected to boost adjusted earnings and free
cashflow in the first full year after closing, which GSK anticipates
will occur in the second half of 2019.
Pfizer, which already has a long-standing HIV medicines joint
venture with GSK, said the transaction would be slightly accretive
in each of the first three years after it closed.
The consumer tie-up follows a deal by GSK earlier this year to buy
Novartis's stake in their consumer joint venture for $13 billion and
comes as Walmsley tries to reshape Britain's biggest drugmaker,
which has seen its shares move sideways for years.
Earlier this month, she agreed to buy cancer drug specialist Tesaro
for $5.1 billion to try to revitalize its pharmaceuticals business,
a high-priced acquisition that was poorly received by the market.
GSK has lagged rivals in recent years in producing
multibillion-dollar blockbusters and it largely sat out a spate of
dealmaking by rivals under previous CEO Andrew Witty.
Seeking to reassure investors of its financial strength, GSK
extended its guarantee on the dividend by stating it expected to pay
unchanged dividends of 80 pence per share for 2019.
GSK was advised by Citi, J.P. Morgan Cazenove and Greenhill, while
Centerview, Guggenheim and Morgan Stanley acted for Pfizer.
(Reporting by Ben Hirschler and Paul Sandle; Editing by Jason Neely
and Keith Weir)
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