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Pfizer and GSK are merging their consumer health units, leading to $12.7bn in combined sales

M&A

Pfizer and GlaxoSmithKline (GSK) have entered into an agreement to create a premier global consumer healthcare company. Pfizer will contribute its consumer healthcare business to GSK's existing consumer healthcare business, where 2017 global sales for the combined business have reached up to $12.7 billion.

The new venture will become a leader in consumer health, providing over the counter (OTC) medicines, from pain relief, respiratory and vitamin and mineral supplements, to digestive, skin and oral health, where it will gain extended reach on a global scale, encompassing the US, Europe, China, India and Australia.

“Ultimately, our goal is to create two exceptional, UK-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,” commented Emma Walmsley, Chief Executive Officer at GSK.

Under the terms of the transaction, Pfizer will receive a 32% equity stake in the joint venture, entitling Pfizer to its pro rata share of the joint venture’s earnings and dividends, which will be paid on a quarterly basis. Pfizer will have the right to appoint three out of the nine members of the joint venture’s board. The transaction is expected to deliver $650mn in peak cost synergies and to be slightly accretive for Pfizer in each of the first three years after the close of the transaction, which is anticipated during the second half of 2019.

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As Pfizer will own less than 50% of the joint venture, Pfizer anticipates deconsolidating Pfizer Consumer Healthcare from its financial statements following the closing of the transaction. In addition, given the Consumer Healthcare business records lower margins than Pfizer’s other businesses, the deconsolidation is expected to have a slight positive impact on Pfizer’s operating margins over the next several years.

Following the integration of the combined business, GSK intends to separate the joint venture as an independent company via a demerger of its equity interest to its shareholders and a listing of the Consumer Healthcare business on the UK equity market. GSK will have the sole right to decide whether and when to initiate a separation and listing for a period of five years from closing of the proposed transaction. GSK may also sell all or part of its stake in the joint venture in a contemporaneous IPO.

After the fifth anniversary of the closing of the proposed transaction, both GSK and Pfizer will have the right to decide whether and when to initiate a separation and public listing of the joint venture.

“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, Chief Operating Officer and incoming Chief Executive Officer, 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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