Global JV deal by GSK-Pfizer

GlaxoSmithKline (GSK) and Pfizer have announced that they have entered into an agreement to create a premier global consumer healthcare company with robust iconic brands.

The boards of directors of both companies have unanimously approved the transaction under which Pfizer will contribute its consumer healthcare business to GlaxoSmithKline’s existing consumer healthcare business.

The 2017 global sales for the combined business were approximately $12.7 billion.

“We are pleased to announce this new joint venture for Pfizer Consumer Healthcare, delivering on our commitment to complete the strategic review for this business in 2018,” Pfizer CEO Ian Read said.

“Pfizer and GSK have an excellent track record of creating successful collaborations, and we look forward to working together again to unlock the potential of our combined consumer healthcare businesses.”

GSK will have a majority controlling equity interest of 68 per cent and Pfizer will have an equity interest of 32 per cent in the joint venture.

As Pfizer will own less than 50 per cent of the joint venture, Pfizer anticipates deconsolidating Pfizer Consumer Healthcare from its financial statements following the closing of the transaction. In the near- to medium-term, this deconsolidation is not expected to have a material impact on Pfizer’s top-line growth. In addition, given the Consumer Healthcare business records lower margins than Pfizer’s other businesses, the deconsolidation is expected to have a slight positive impact on Pfizer’s operating margins over the next several years.

For GSK too, the new joint venture will be well-positioned to deliver stronger sales, cash flow and earnings growth driven by category leading brands, science-based innovation and substantial cost synergies. The combination will bring together two  complementary portfolios of consumer health brands, including GSK’s Sensodyne, Voltaren and Panadol and Pfizer’s Advil, Centrum and Caltrate. The joint venture will be a category leader in pain relief, respiratory, vitamin and mineral supplements, digestive health, skin health and therapeutic oral health. The joint venture will be the global leader in OTC products with a market share of 7.3 per cent ahead of its nearest competitor at 4.1 per cent and have number one or two market share positions in all key geographies, including the US and China.

Within three 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 says it will substantially complete the integration and expects to make continued progress in strengthening its pharmaceuticals business and R&D pipeline.

GSK CEO Emma Walmsley said: “Through the combination of GSK and Pfizer’s consumer healthcare businesses we will create substantial further value for shareholders. At the same time, incremental cashflows and visibility of the intended separation will help support GSK’s future capital planning and further investment in our pharmaceuticals pipeline.
“With our future intention to separate, the transaction also presents 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.”

Should a separation and listing occur during the first five years after closing, Pfizer has the option to participate through the distribution of its equity interest in the joint venture to its shareholders or the sale of its equity interest in a contemporaneous IPO. After the fifth anniversary of the closing of the proposed transaction, both GSK and Pfizer will have the right to decide whether and when to initiate a separation and public listing of the joint venture.

GSK statement says the proposed transaction is expected to realise substantial cost synergies, with the joint venture expected to generate total annual cost savings of £0.5 billion ($0.89 billion) by 2022 for expected total cash costs of £0.9 billion (A$1.6 billion) and non-cash charges of £0.3 billion ($0.53 billion). Planned divestments targeting around £1 billion (A$1.78 billion) of net proceeds are expected to cover the cash costs of the integration. Up to 25 per cent 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.

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