The Rising Influence of Rising Affluence

[DewDiligence]

PFE, GSK form consumer-health JV slated for eventual spin-off—PFE’s equity stake in JV=32%:

https://finance.yahoo.com/news/pfizer-glaxosmithkline-announce-joint-venture-070300143.html

The Boards of Directors of both companies have unanimously approved the transaction under which Pfizer will contribute its consumer healthcare business to GlaxoSmithKline’s existing consumer healthcare business. The 2017 global sales for the combined business were approximately $12.7 billion.

….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 $650 million 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, subject to receipt of GSK shareholder approval and regulatory approvals, and satisfaction of other customary closing conditions.

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.

…Should a separation and listing occur during the first five years after closing, Pfizer has the option to participate through the distribution of its equity interest in the joint venture to its shareholders or the sale of its equity interest 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 joint venture will be a category leader in pain relief, respiratory, vitamin and mineral supplements, digestive health, skin health and therapeutic oral health and will be the largest global consumer healthcare business. In addition, the joint venture is expected to be the first or second largest consumer healthcare player in key geographies, including the United States, Europe, China, India and Australasia. The joint venture will operate globally under the GSK Consumer Healthcare name.

…For the year ended December 31, 2017, the Pfizer Consumer Healthcare business recorded revenues of approximately $3.5 billion and the GSK Consumer Healthcare business recorded revenues of approximately $9.2 billion.

Two points worth noting: i) No cash is changing hands immediately; and ii) PFE shareholders may end up with shares of the consumer-health JV at some point.

Currently, the consumer-health (i.e. OTC) segment comprises 25% of GSK's overall sales and 7% of PFE's overall sales.