Spin-off from GSK: A new consumer care giant on the London Stock Exchange

According to Hargreaves Lansdown analyst Susannah Streeter, Haleon could sign the biggest launch of the decade in the UK market and even Europe.

Goodbye Sensodyne, Voltaren, Nicorette: British lab GlaxoSmithKline (GSK) is preparing to split up its consumer care business, giving birth to Haleon, a new giant that will take its first steps on the London Stock Exchange on Monday.

Flagship project by Emma Walmsley, who took over as CEO of GSK in 2017 and has been under pressure from activist investors for more than a year, is set to spur sales growth at the lab, which will now focus on biopharmaceuticals.

Haleon, the new advocate for consumer care, could sign the biggest IPO of the decade on the London Stock Exchange, or even Europe, according to Hargreaves Lansdown analyst Susannah Streeter.

With a valuation estimated by Bloomberg at £40bn, it would put it ahead of Swiss mining giant Glencore and its £38bn entry into the UK market in 2011.

On Monday, shareholders of GSK, which owns 68% of that company, will get one Haleon share for every stock held in the UK lab.

GSK will also receive more than £7 billion in dividends from its subsidiary at the time of the split, of which it will initially retain 6% before gradually withdrawing.

American pharmaceutical giant Pfizer, which owns the remaining 32%, has indicated it will eventually exit the company to focus on its own “innovative medicines and vaccines” strategy.

“Release potential”

Emma Walmsley has repeatedly argued that this operation, “the most important societal development GSK has seen in 20 years,” “will unlock the potential of both GSK and Haleon.”

GSK “has been less successful than competitors like AstraZeneca in recent years,” comments Keith Bowman, an analyst at Interactive Investor.

In fact, GSK stock is up just 6% over the past 5 years, while competitor Astrazeneca has more than doubled.

The latter, in particular, was one of the first labs to commercialize a vaccine against COVID-19, while GlaxoSmithKline largely lagged behind.

The split will be enough to satisfy activist investors at Bluebell Capital Partners and Eliott Management, who are highly critical of the lab’s performance, according to Mr. Bowman.

In particular, the merger allows “an independent assessment” of the business areas and “increased responsibility of the management,” explains the analyst.

In particular, GSK will look to rely on niche drugs to support its goal of more than 5% sales growth this year.

In keeping with its new strategy, the lab has already launched major maneuvers: in April, it acquired Californian company Sierra Oncology, which specializes in targeted therapies for rare cancers, for $1.9 billion. At the end of May, it acquired the American biopharmaceutical company Affinivax, “a pioneer in the development of a new class of vaccines”, particularly against pneumococci, for a sum of up to $3.3 billion.

series of brands

After sales hit half-staff at the height of the pandemic, the group saw sales rebound in the first quarter, both in its biopharmaceutical operations and in consumer care.

Good news for the future Haleon, which had already more than doubled its net profit in two years to £1.4 billion in 2021.

Hargreaves Lansdown analyst Susannah Streeter believes the former GSK Consumer Healthcare division, which operates in 100 countries with a number of international brands, could benefit from the refocus on consumer activities.

The GSK-Pfizer joint venture had also recently attracted the attention of food and hygiene giant Unilever, which made a £50 billion attempt in January that GSK deemed insufficient.

However, the new group will have to “juggle the inflation in its costs that has swept through the consumer goods industry,” Ms Streeter warns, and its dividend could be weighed down for years by the £10bn debt inherited from GSK.

That didn’t leave GSK shareholders indifferent. They voted 99.81% in favor of the split on July 6, confirming the strategy of Ms Walmsley, who ran that arm of GSK before taking over as head of the group.

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