$11 Bln Windfall From Consumer Spin-Off Expected For GSK’s Drugs Arm

Plans for transforming its consumer healthcare business into a separately listed company were revealed by GSK on Wednesday which would help the firm to further strengthen the process of drug development at the pharmaceuticals business unit of the company and have an 8 billion pound ($11 billion) windfall.

It was in December 2018 that the announcement of the separation was first made by the company and investors have been waiting to get more details of the separation. At that time GSK had said that it had agreed to form a joint venture for consumer brands such as Sensodyne toothpaste and Advil painkillers with Pfizer.

The company now plans to undertake the spin off sometime in the middle of next year and this deal will allow the company to focus on bolstering a core drugs business which has been hindered by the absence of fast-growing products and treatments being deferred by patients because of the Covid-19 pandemic.

Even though GSK is the biggest vaccines maker of the world, the company has lagged behind the likes of Pfizer, Moderna and AstraZeneca in terms of coming out with the vaccine for Covid-19.

“I am very aware that GSK shares have underperformed for a long period,” CEO Emma Walmsley told a news conference. “Together, we are now ready to deliver a step-change in growth for New GSK and unlock the value of Consumer Healthcare,” added Walmsley, who plans to stay on after the demerger.

After reports in in April that activist investor Elliott had taken a multibillion dollar stake in GSK, there was mounting pressure on Walmsley to do something,

According to data from Refinitiv Eikon, currently the market value of GSK is about 10.3 times its forecast core earnings which includes net debt but which is below an average of more than 12 for global pharma majors.

In the past 12 months, the stock price of the company has dropped by 14 per cent.

Its pharmaceuticals business was forecast by GSK to increase in sales by more than 5 per cent annually till 2026 which was in line with the current expectations of analysts. The company said that it expects to receive a dividend of up to 8 billion pounds from the consumer arm as the new spin off company will have its own listing on the London Stock Exchange.

The company also said that the a higher share of debt would be taken on by the consumer operations which was expected by analysts and investors and there will be a reduction in the combined dividend of the two businesses.

That would present the company the opportunity to invest more in drug development and deals for its pharmaceuticals business in particular.

GSK shareholders will receive stock in the new consumer healthcare group amounting to at least 80 per cent of the 68 per cent stake that GSK currently owns in it. Pfizer has the remaining 32 per cent.

The company also intends to sell the remaining stake of up to 20 per cent in order to provide even more financial fire power for New GSK which is however seen as a a short-term investment only but will be done “in a timely manner,” the group said.

(Adapted from Investing.com)


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