Shares in GlaxoSmithKline (LON:GSK) have spiked in London this morning as the blue-chip pharmco announced that it was it was creating a nearly £10-billion consumer healthcare joint venture with US peer Pfizer. The London-listed pharmco, which will hold a majority stake in the venture, further said that the move lays the foundation of its split into two UK-based companies.
As of 09:45 GMT, GSK’s share price had added 7.04 percent to 1,550.80p, outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.80 percent higher at 6,755.28 points. The group’s shares have added more than 18 percent to their value over the past year, as compared with about a 10.6-percent drop in the Footsie.
GSK unveils new JV
GSK announced in a statement this morning that it had reached a deal with Pfizer to combine their consumer health businesses into a consumer healthcare JV, with combined sales of approximately £9.8 billion. The UK group will hold a majority controlling equity interest of 68 percent, while the US pharma giant will hold the balance.
The FTSE 100 group expects the deal to result in ‘substantial’ cost synergies, with the Joint Venture expected to generate total annual cost savings of £500 million by 2022 for expected total cash costs of £900 million and non-cash charges of £300 million. Planned divestments targeting around £1 billion of net proceeds are expected to cover the cash costs of the integration.
The move follows GSK’s recent buyout of Novartis’ stake in their Consumer Healthcare JV.
Future split of GSK
The UK drugmaker noted in today’s statement that within three years of the closing of today’s deal, it 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.
“Eighteen months ago, I set out clear priorities and a capital allocation framework for GSK to improve our long-term competitive performance,” Emma Walmsley, Chief Executive Officer at GSK, commented in the statement. “Ultimately, our goal is to create two exceptional, UK-based global companies, with appropriate capital structures, that are each well positioned to deliver improving returns to shareholders and significant benefits to patients and consumers.”