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GSK Receives Regulatory Nod for Consumer Healthcare Demerger

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GSK plc (GSK - Free Report) announced that it has received approval from the Financial Conduct Authority, a financial regulatory body in the United Kingdom, for the separation of its Consumer Healthcare business from its biopharmaceuticals business, comprising drugs and vaccines.

The Consumer Healthcare business is a joint venture between GSK and Pfizer (PFE - Free Report) , which hold 68% and 32% stakes, respectively.

The new Consumer Healthcare will be named Haleon and is expected to be listed on the Main Market of the London Stock Exchange for public trading on Jul 18, 2022. On its first-quarter earnings call, GSK had informed that it would change its company name to GSK plc from GlaxoSmithKline plc from a date in mid-May. The biopharmaceuticals business will be GSK’s primary business, following the demerger of the Consumer Healthcare business into Haleon.

The demerger is currently subject to approval from GSK’s shareholders. GSK has scheduled a general meeting on Jul 6 for getting investor inputs on the deal.

GSK had announced the demerger of its Consumer Healthcare business in June last year. Per the demerger proposal, GSK will distribute at least 80% of its stake in the business to its shareholders. Qualifying GSK shareholders will receive one share of Haleon for each share of GSK.

Following the demerger, GSK’s shareholders will hold at least 54.5% of Haleon and GSK itself will hold up to 6%. An aggregate of 7.5% of Haleon will be held by certain Scottish limited partnerships, set up to provide additional funding for GSK’s UK Pension Schemes. Pfizer is expected to maintain its ownership stake of 32% in Haleon. GSK and Pfizer plan to exit their ownership stakes in Haleon.

In the year so far, Glaxo’s shares have declined 2.4% against the industry’s 4.4% increase.

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Following the demerger of the Consumer Healthcare business, GSK is planning to focus purely on biopharmaceuticals, especially the development of innovative vaccines and specialty medicines. The company expects sales of its biopharmaceuticals business to grow at a compound annual growth rate (CAGR) of more than 5% over the next five years. It expects adjusted operating profit to grow at a CAGR of more than 10% in the period.

GSK is expected to receive cash proceeds of more than £7 billion at separation in dividends from the current holding company of the Consumer Healthcare business. The additional cash from the demerger will help GSK to fund its wide array of pipeline candidates as well as make attractive acquisitions.

In the last two months, GSK signed two definitive agreements to acquire Sierra Oncology and privately-held Affinivax. The potential acquisition of Sierra will add a promising cancer candidate, momelotinib, to GSK’s pipeline.

Sierra successfully completed a late-stage study in January 2022. Regulatory submissions seeking approval for momelotinib are expected to be filed by Sierra later this year in the United States as well as Europe.

With the Affinivax acquisition, GSK is looking to boost its vaccines pipeline and get access to a new, potentially disruptive technology to build a strong portfolio of innovative vaccines and specialty medicines.

These acquisitions are likely to support GSK’s anticipated growth in the coming years. Moreover, GSK’s shareholders may also benefit following the separation of the Consumer Healthcare business into a separate business, which may attract potential buyers as it will be a new world leader in consumer healthcare with an exceptional and focused portfolio of category-leading brands.

Unilever (UL - Free Report) , a British multinational consumer goods company, had offered to buy GSK’s Consumer Healthcare business last year for £50 billion.

Unilever raised its bid twice before stopping pursuing the acquisition. However, Unilever may again try to acquire the business, following its separation from GSK next month. There had been reports that Nestle & Reckitt were also interested in buying GSK’s consumer business.

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GSK currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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