Business Essentials for Professionals

GSK To Divide In Two Following Its JV With Pfizer’s Consumer Unit


GSK To Divide In Two Following Its JV With Pfizer’s Consumer Unit
Following the completion of the formation of a new venture with Pfizer’s consumer health division, GlaxoSmithKline has created plans to divide up its business into two parts – one part would focus on prescription drugs and vaccines, while the second part would focus on the business of over-the-counter products. This split up of one of the largest companies in the world is being viewed to be amongst the boldest move till date for the company’s chief executive Emma Walmsley, who was appointed to the position just last year.
The calls for breaking up the business of the company which have been raised by a number of activist investors for more than two years now had been on earlier occasions played down by Emma Walmsley.
However, there was a diametrically opposite announcement made by Emma Walmsley on Wednesday claiming that GSK and Pfizer would create a joint venture and bring together their consumer health businesses in a new entity that would have a combined sale of about 9.8 billion pounds ($12.7 billion). 68 per cent of the new entity would be owned by the British firm after the all-equity transaction deal between the companies.
During this announcement, GSK also said that the joint venture between the companies would create the base for the formation of two new global companies based in the UK where one of the companies would be focused on pharma/vaccines and the other on consumer healthcare. The company said that this split would happen within a time period of three years following the creation of the joint venture.
Pfizer had also been under pressure to do something about its consumer health division and it analysts claim that this deal would allow it to settle that issue. The consumer health division of the company includes brands such as Advil painkillers and Centrum vitamins. Earlier this year, the company had unsuccessfully attempted to organize an outright sale of that business division. 
Both the company expect that annual cost savings of 500 million pounds by 2022 would be generated by the new joint venture between GSK and Pfizer. The companies also expect the generation of cash to the tune of about 900 million pounds while incurring non-cash charges of 300 million. GSK plans divestments of some 1 billion pounds.
In an attempt to assure investors of its financial capabilities, GSK reiterated its pledge about the dividend as the company said that the previously announced dividends for 2019 of 80 pence per share is expected to remain unchanged by the company.