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Loading demerged unit with the bulk of its debt could allow GSK to reduce leverage in the remaining businesses
Thursday 17 Jun 2021 Author: Martin Gamble

Global pharmaceutical company GlaxoSmithKline (GSK) plans to demerge its consumer healthcare division by August 2022 and give investors a direct stake in the some of the world’s most iconic consumer brands.

While details are still sketchy, the head of the division Brian McNamara told the Financial Times that the demerged company would make the top 20 of the FTSE 100 index, implying a market capitalisation of at least £30 billion.

McNamara joined the business from Swiss pharmaceutical company Novartis after GSK bought out their consumer products joint venture in 2018.

GSK merged its consumer products business with US firm Pfizer’s consumer healthcare division to create the leading player in a fragmented consumer health industry.

A demerger would involve creating new shares and giving them to existing shareholders along the lines of one newco share for every three GSK shares held. Investors would then be free to hold those shares or sell them for cash in the market.

The advantage of going down this route is that it realises value for the parent company while also giving the new company freedom to pursue its own strategy and financing.

GSK is due to host an investor day on 23 June when McNamara will outline prospects for the business and clarify timing of the listing.

Interestingly, under the original terms of the joint venture GSK can also sell its 68% interest via an initial public offering.


McNamara has indicated that the vitamins and mineral supplement part of consumer healthcare could benefit from making small bolt-on acquisitions.

These activities received a boost from the pandemic as consumers spent more money on wellbeing products and GSK reported 16% sales growth last year, amid a 4% growth in overall consumer healthcare revenues to £10 billion.

An acquisition strategy could be financed from operations given the highly cash generative nature of the business.

But it might also imply raising fresh equity at the same time of the spin-off given the high indebtedness of the business. Management has indicated it could have net debt to EBITDA (earnings before interest, taxes, depreciation, and amortisation) of 3.5-to-4-times.

This is generally considered to be below investment grade, precluding some institutions from investing in the debt.

The new consumer healthcare business will be the largest global player in the over-the-counter market with a 7.3% share, almost double its nearest competitor, according to the company.

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