GlaxoSmithKline, Pfizer To Merge Consumer Health Care Businesses

After spurning an offer in March from Pfizer Inc. PFE for its consumer health care business, GlaxoSmithKline plc GSK has gone back and stitched up a deal to form a joint venture, combining the consumer health care businesses of both companies.

What Happened

Pfizer and GSK announced Wednesday an agreement to carve out the former's consumer health care business and merge it with the latter's existing consumer health care business, with the proposed combination boasting of iconic brands such as the Advil painkiller and Centrum vitamins, as well as Sensodyne toothpaste and the Panadol painkiller.

The two units had combined global sales of $12.7 billion in 2017.

The joint venture, to be named GSK Consumer Healthcare, will be structured such that Pfizer will own a minority 32 percent equity stake and Glaxo the remaining 68 percent stake.

Pfizer stands to receive its pro rata share of the joint venture's earnings and dividends, and the right to appoint three out of the nine members of the joint venture's board.

The deal is expected to be consummated in the second half of 19, contingent on approval by Glaxo shareholder and other regulatory approvals. For Pfizer, the deal is expected to ring in peak cost synergies of $650 million and be slightly accretive in the three years after the closing.

Why It's Important

The joint venture business will be a category leader in pain relief, respiratory, vitamin and mineral supplements, digestive health, skin health and therapeutic oral health, while also occupying the top or second spot in consumer health care business in key geographies, the companies said.

The split will help GSK focus on its prescription drugs and vaccines business.

What's Next

Pfizer expects to deconsolidate the consumer health care business from its financial statements following the closing of the deal. Meanwhile, GSK will consolidate the joint venture into its financial statements until the separation occurs.

GSK expects to spin-off of the combined business as an independent company following the integration, and list it on the U.K. stock market, or sell all or part of its stake in the joint venture in a contemporaneous IPO.

If the spin-off occurs within five years after the closing of the deal, Glaxo has the sole right to decide whether and when to initiate a separation and listing, but if it occurs after five years, both companies will have the right to decide on the separation and listing.

GSK CEO Emma Walmsley will be the chairman of the joint venture, and Brian McNamara, CEO of GSK's consumer health care business will be the CEO of the joint venture.

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