GSK and Pfizer to combine consumer businesses

GSK and Pfizer to combine consumer businesses
The transaction will create a new world-leading Consumer Healthcare company, says GlaxoSmithKline's chief executive officer Emma Walmsley

19 December 2018 - Deborah Wilkes

GlaxoSmithKline (GSK) and Pfizer have agreed to combine their consumer healthcare businesses into a "world-leading" joint venture with combined annual sales of around GBP9.8 billion (USD12.7 billion).

GSK said the move paved the way for its separation into two new UK-based companies focused on Pharmaceuticals/Vaccines and Consumer Healthcare.

Within three years of forming the joint venture, 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.

Market share of 7.3%

According to GSK, the joint venture would be the global leader in OTC products with a market share of 7.3%. The company noted the nearest competitor had a share of 4.1%. 

In 2017, GSK Consumer Healthcare had worldwide sales of around USD9.2 billion, while Pfizer Consumer Healthcare recorded sales of around USD3.5 billion.

GSK said the joint venture would have number one or two market share positions in all key geographies, including the US and China.

"The combination will bring together two highly complementary portfolios of trusted consumer health brands, including GSK's Sensodyne, Voltaren and Panadol and Pfizer's Advil, Centrum and Caltrate," commented GSK.

"The joint venture will be a category leader in pain relief, respiratory, vitamin and mineral supplements, digestive health, skin health and therapeutic oral health," added the company.

Concludes Pfizer's strategic review

Commenting on the announcement, Pfizer's chairman and chief executive officer Ian Read said it delivered on the company's "commitment to complete the strategic review for this business in 2018".

Pfizer announced in October 2017 that it was considering a range of strategic alternatives, including divestment, for its global Consumer Healthcare business (click here to read the News story).

In March 2018, GSK revealed that it had withdrawn from the process to acquire Pfizer Consumer Healthcare (click here to read the News story).

A few days later, GSK announced that it was acquiring Novartis' 36.5% stake in the consumer healthcare joint venture between the two companies for USD13.0 billion in cash (click here to read the News story).

Commenting on the joint venture with Pfizer, GSK's chief executive officer Emma Walmsley said the transaction presented a "clear pathway forward for GSK to create a new global Pharmaceuticals/Vaccines company – with an R&D approach focused on science related to the immune system, use of genetics and advanced technologies – and a new world-leading Consumer Healthcare company".

"Ultimately," she added, "our goal is to create two exceptional UK-based global companies with appropriate capital structures."

Details of the deal

The proposed transaction, which is expected to close in the second half of 2019, is subject to approval by GSK's shareholders and conditional upon receipt of certain anti-trust authority approvals.

Following completion, Pfizer will contribute its Consumer Healthcare business to GSK's existing Consumer Healthcare business in return for equity shares in the business. GSK will have a majority controlling equity interest of 68% in the joint venture, with Pfizer holding the remaining 32%.

The joint venture will operate under the GSK Consumer Healthcare name in all territories where GSK and Pfizer have a presence. The only exception will be GSK's interests in its listed subsidiary in Nigeria, which will be excluded from the joint venture.

The board of the joint venture company will have six directors from GSK and three from Pfizer.

Walmsley will be chair of the joint venture until separation. Brian McNamara, currently chief executive officer of GSK Consumer Healthcare, will be chief executive officer of the new joint venture, and Tobias Hestler, currently chief financial officer of GSK Consumer Healthcare, will be chief financial officer.

Substantial cost synergies

GSK said the proposed transaction was expected to realise substantial cost synergies. There should be total annual cost savings of GBP0.5 billion by 2022 for expected total cash costs of GBP0.9 billion and non-cash charges of GBP0.3 billion.

The company added that planned divestments targeting around GBP1 billion of net proceeds were expected to cover the cash costs of the integration.

GSK said up to 25% of the cost savings were 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 20s" by 2022.

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