GSK plans to split into 2 as part of Pfizer joint venture

GlaxoSmithKline (GSK) plans to split into two businesses – one for prescription drugs and vaccines, the other for over-the-counter products – after forming a new joint venture with Pfizer’s consumer health division. The revamp is the boldest move yet by Emma Walmsley, the GSK chief executive 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 at 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 U.K.-based global companies focused on pharma, vaccines and consumer health care 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GSK – whose consumer products include Sensodyne toothpaste and Panadol painkillers – had withdrawn from that earlier Pfizer auction process, but Walmsley said the opportunity to strike an all-equity deal cleared the way for the new agreement.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 said.

“What this deal is all about is the opportunity to strengthen two businesses – a world-leading consumer health care business, and a new GSK that is focused on pharma and vaccines.”

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.