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GlaxoSmithKline, Pfizer Team Up to Form New Joint Venture

- By Sydnee Gatewood

Shares of GlaxoSmithKline PLC (GSK) and Pfizer Inc. (PFE) rose on Wednesday after the companies announced a new health care joint venture, creating the world's biggest supplier of over-the-counter medicines.


According to the terms of the all-equity deal, the British drugmaker will combine its consumer health division with that of its American rival and split its pharmaceutical business into two separate divisions. One division will focus on over-the-counter medications while the other will specialize in prescription drugs and vaccines.

GlaxoSmithKline will have a 68% controlling equity stake in the new entity, which will eventually be separated and listed on the U.K. stock market, while Pfizer will have a 32% interest.

In a statement, GlaxoSmithKline CEO Emma Walmsley said that with the company's future plans to separate the business, the deal presents an opportunity for it to build a new global pharmaceuticals and vaccines business "with an R&D approach focused on science related to the immune system, use of genetics and advanced technologies, and a new world-leading Consumer Healthcare company."

"Ultimately, our goal is to create two exceptional, U.K.-based global companies, with appropriate capital structures, that are each well positioned to deliver improving returns to shareholders and significant benefits to patients and consumers," she added.

GlaxoSmithKline said the joint venture is expected to have combined sales of $12.7 billion as well as generate total annual cost savings of 500 million pounds ($633.4 million) by 2022 for total cash costs of 900 million pounds and 300 million pounds in non-cash charges.

As for Pfizer, the company said it expects the transaction will be slightly accretive in the each of the three years following the close of the deal.

"The combination of these leading businesses with distinct regional and category strengths will be more sustainable and broader in scope than either company individually," Pfizer Chief Operating Officer and incoming CEO Albert Bourla said. "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."

Walmsley will be chair of the new joint venture, which will be called GSK Consumer Healthcare. Brian McNamara, who is currently CEO of Glaxo's consumer arm, will step into the top leadership role and Tobias Hestler, the division's chief financial officer, will assume the same role at the combined entity.

The deal is expected to close in the second half of 2019.

With a $94.03 billion market cap, shares of GlaxoSmithKline were up 3.42% on Wednesday morning at $38.36. Shares of Pfizer were up 0.42% at $42.58, yielding a market cap of $246.13 billion. GuruFocus estimates Pfizer's stock has climbed 18% year to date while Glaxo has risen approximately 8%.

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Disclosure: No positions.

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This article first appeared on GuruFocus.


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