GSK and Pfizer create new Consumer Healthcare JV

[idpickering]

GlaxoSmithKline plc (LSE/NYSE: GSK) has reached agreement with Pfizer Inc to combine their consumer health businesses into a new world-leading Joint Venture, with combined sales of approximately £9.8 billion ($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 proposed all-equity transaction represents a compelling opportunity to build on the recent buyout of Novartis' stake in GSK Consumer Healthcare, to create a new world-leading consumer healthcare business and to deliver further significant shareholder value. The proposed transaction also supports GSK's key priority of strengthening its pharmaceuticals business over the next few years by increasing cashflows and providing an effective pathway through the separation of GSK Consumer Healthcare to build further support for investment in its R&D pipeline.

https://www.investegate.co.uk/glaxosmit ... 00039434K/

[jackdaww]

SP up 5% at open .

[daveh]

Some quotes form the announcement:

Future separation

The proposed transaction is transformational to the scale of GSK's Consumer Healthcare business. 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 substantially 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

So I wonder how this will be done. Will the shares in the new JV company be given to existing share holder along the lines of receiving S32 shares from BLT (as was). Or will the JV be sold in the market and the proceeds used to reduce the pharma companies debt. I'll be unhappy with the latter.

Dividend expectations

GSK remains committed to its current dividend policy and confirms it continues to expect to pay 80 pence per share in dividends for 2018. Recognising the significance of this proposed transaction and the importance of dividends to shareholders, the company is today confirming that it expects to pay dividends of 80 pence per share for 2019.

Going forward, the proposed transaction enhances prospects for the Consumer Healthcare business and supports the development of GSK's Pharmaceuticals business. With expected improvements in both businesses, GSK expects to be well positioned to deliver returns to shareholders alongside continued investment in its strategic priorities.

So we can expect dividends to remain unchanged for another year, but my guess is once the JV is floated off by whatever means the pharma part of the company is going to pay lower dividends as it is likely to require significant investments in drug pipeline on an ongoing basis.

[Wizard]

I read the statement that GSK will have a controlling equity interest (rather than GSK shareholders) to mean that they would hold the shares under GSK.

Terry.

[daveh]

I read the statement that GSK will have a controlling equity interest (rather than GSK shareholders) to mean that they would hold the shares under GSK.

Terry.

They will initially, but if it is listed on the stock exchange I thought there had to be a significant % of shares available as a free float i.e. not owned by the parent company. Therefore at some point in the next three years or so the JV companies shares are going to be available. I have in the past with other companies I've owned seen it done in a number of ways - shares given to the shareholders of the parent company, shares sold as an IPO (Britvik comes to mind for me) and the proceeds invested back into the parent company and/or released to shareholders in the form of a special dividend or the JV sold to another company. I'm hoping with the size of the JV company they later two options are unlikely.


edit because I can't spell.

[moorfield]

SP up 5% at open .

But still well down on the pre-Tesaro SP two weeks ago - you have a short memory.

daveh has nailed the important stat here - dividend is up 0% at open.

[richfool]

GSK currently up 7%. NG down 9% yesterday. Dividends no change.

[pyad]

It's way too soon to be wondering how they'll float the new company. They say it will be within 3 years of the closing of the transaction, and that won't take place until the second half of calendar 19. So I doubt they even know themselves at present how it will be done as it will depend upon conditions at the time. Generally speaking though demergers are good news for HYPers as they frequently work out well in the years that follow, an example of Market Trading at work, the process that trashes tinkerers.

Meanwhile the freezing of the div for 19 at yet another 80p, where it's been stuck for years, is not such good news though better than a kick up the aarse I guess.

[Wizard]

It's way too soon to be wondering how they'll float the new company. They say it will be within 3 years of the closing of the transaction, and that won't take place until the second half of calendar 19. So I doubt they even know themselves at present how it will be done as it will depend upon conditions at the time. Generally speaking though demergers are good news for HYPers as they frequently work out well in the years that follow, an example of Market Trading at work, the process that trashes tinkerers.

Meanwhile the freezing of the div for 19 at yet another 80p, where it's been stuck for years, is not such good news though better than a kick up the aarse I guess.

My bold.

Would be most grateful if you can point me to the published analysis on this as I would be interested to read it.

Terry.

[88V8]

GSK with its long uncovered divi is surely not an HYP candidate.

And the newcos with no track record won't be either.

So we'll contuinue unloading our excessive holding, a legacy of the years that OH worked there.

V8

[Raptor]

Moderator Message:
Have deleted 2 posts. Terry's post is a valid response. Raptor.