Pharma giants Pfizer and GlaxoSmithKline are creating a joint venture consumer healthcare business. The Boards of Directors of both companies have unanimously approved the transaction under which Pfizer's consumer healthcare business will essentially roll into GlaxoSmithKline's existing consumer healthcare business.
It will operate globally under the GSK Consumer Healthcare name.
Pfizer will own less than 50 percent of the joint venture and GSK Consumer Healthcare expects to deconsolidate Pfizer Consumer Healthcare from its financial statements following the closing of the transaction. The terms of the transaction stipulate that Pfizer will get a 32 percent equity stake in the joint venture, and will be entitled to a proportional share of the joint venture's earnings and dividends. The company will also have the right to appoint three out of the nine members of the joint venture's board.
The close of the transaction is expected in the second half of 2019, subject to GSK shareholder and regulatory approvals, as well as other customary closing conditions.
WHY IT MATTERS
According to Pfizer, the joint venture will be largest global consumer healthcare business and will lead in pain relief, respiratory, vitamin and mineral supplements, digestive health, skin health and therapeutic oral health. Additionally, the new company is expected to rank as the first or second largest consumer healthcare player in key geographies, including the United States, Europe, China, India and Australasia.
Big merger and acquisition activity has not been confined to the hospital sector, especially this year. The CVS Health/Aetna mega-merger got final Justice Department approval but is not sealed yet and Cigna/Express Scripts is also set to close this week.
There has also been big movement in the urgent care space, with well-know systems NextCare and FastMed announcing merger plans and Dignity Health-GoHealth's joint urgent care operation announcing plans to expand their footprint as well.
WHAT ELSE YOU NEED TO KNOW
The transaction is expected to deliver $650 million in peak cost synergies. As part of the deal, GSK will pay a breakup fee of $900 million if its board of directors changes, withdraws or qualifies its recommendation to shareholders for approval of the deal; GSK's shareholders vote and do not approve it; or GSK's shareholders do not approve the proposed transaction by September 30, 2019. An extension could apply in certain circumstances.
The move is expected to yield a slight positive impact on Pfizer's operating margins over the next several years.
After GSK integrates the newly combined business, the plan is to spin off the joint venture company into an independent entity via a demerger of its equity interest to its shareholders and a listing of the Consumer Healthcare business on the UK equity market.
GSK's current CEO Emma Walmsley will serve as chair of the new joint venture and current GSK Consumer Healthcare CEO Brian McNamara will lead the new venture as CEO. GSK's CFO Tobias Hestler will serve as CFO, Pfizer said.
In 2017, Pfizer Consumer Healthcare reported $3.5 billion in revenue and GSK Consumer Healthcare recorded roughly $9.2 billion.
ON THE RECORD
"The combination of these leading businesses with distinct regional and category strengths will be more sustainable and broader in scope than either company individually," said Albert Bourla, COO and incoming CEO, Pfizer. "We believe that this joint venture is a great opportunity to ensure the future success of Pfizer Consumer Healthcare while unlocking meaningful after-tax value for Pfizer shareholders."
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