What you should know about the GlaxoSmithKline demerger

The LSE could see its biggest IPO in a decade when GlaxoSmithKline spins off its Consumer Healthcare business into a new company. Discover everything you need to know about the GSK demerger and subsequent £50 billion Haleon IPO.

GSK Consumer Healthcare demerger explained

GlaxoSmithKline (GSK), one of the UK’s largest biotech stocks, is spinning off its Consumer Healthcare business into a new company called Haleon.

Currently, the GlaxoSmithKline Consumer Healthcare business is a joint venture between GSK and Pfizer – who own 68% and 32% respectively. The GSK demerger will take 80% of GSK’s 68% holdings. The demerger will also establish a level-2 sponsored American depositary receipt (ADR) programme on the NYSE – a common way for foreign companies to have their shares traded on US exchanges.

GSK demerger date

The demerger is expected to be completed by July 18 2022, when Haleon shares will list on the London Stock Exchange.

The demerger is still contingent on approval from GSK shareholders at the company’s annual general meeting, which will be held on July 6.

What does the GSK split mean for shareholders?

Current GSK shareholders will be issued one new Haleon share for each GSK share they hold. Their existing GSK shares will not be impacted, unless they sell or transfer them.

GSK demerger shares

Haleon shares will be admitted to the London Stock Exchange main market shortly after the demerger. Dealing is expected to commence when the London Stock Exchange (LSE) opens at 8:00 on 18 July 2022.

UBS analysts had previously calculated that GSK’s Consumer Healthcare business had a forward PE ratio of 23.5, which suggests that Haleon shares could be deemed expensive at IPO. As a contrast, Shire – another UK pharma company – has a PE ratio of 12, while GSK and Pfizer themselves have PE ratios of 12.96 and 11.58 respectively.

Following the split from GSK, the total issued ordinary share capital of Haleon will be held as follows:

• GSK shareholders will jointly own at least 54.5%
• GSK will hold up to 6%
• Pfizer will continue to hold 32%
• Certain Scottish limited partnerships – which provide funding to GSK pension pots – will hold 7.5%

The lock-up period is expected to last several months. Following which Pfizer is expected to sell down its stake in Haleon. There is an agreement in place between Pfizer and GSK to ensure that their selling of shares does not destabilise Haleon shares.

What is Haleon?

Haleon is the new, separate company that will exist after the GSK demerger. It’s still expected to be a world-leader in the healthcare industry thanks to its a portfolio of global brands. This includes Sensodyne, Voltaren, Panadol and Centrum that are already used by consumers worldwide.

Haleon currently has operations in five categories of consumer healthcare, which all contributed toward its revenue in 2021:

1. Oral health – 28.5% of revenue
2. Pain relief – 23.4% of revenue
3. Digestive health and other – 20.4% of revenue
4. Vitamins, minerals and supplements (VMS) – 15.7% of revenue
5. Respiratory health – 11.9% of revenue

Haleon will continue to be led by Brian McNamara, who was in charge while the joint venture was still part of GSK, and the board will be chaired by Sir Dave Lewis, former Tesco chief executive.

How much will Haleon be worth?

Haleon could be worth upwards of £50 billion at IPO according to reports. GSK turned down a £50 billion takeover bid from Unilever at the end of 2021, stating it had undervalued the Consumer Healthcare Business.

Will Haleon shares be a good investment?

Typically, healthcare stocks are seen as good investments during periods of economic uncertainty. That’s because there will be stable demand for consumer goods such as toothpaste and painkillers. However, Haleon will need to prove it can support itself following the split and show it can compete with other firms in the industry.

In the year ended December 31 2021, pre-tax profits of Haleon were £1.6 million and revenue for the year sat at £9.5 billion.

Haleon will be starting out with approximately £10.3 billion in net debt, as GSK is planning to take a dividend of more than £7 billion and Pfizer is taking more than £3 billion. This would give Haleon a net debt-to-EBITDA ratio of approximately 4x. In comparison, Johnson & Johnson’s ratio is 0.1x.

The company’s ability to pay down this debt and build success relative to its peers will continue to depend on its development of new products. Haleon is expected to launch two over-the-counter products in the next few years, and UBS has predicted each will add 1% to its annual sales growth.

Haleon expects to increase sales by 4-6% annual in the medium term, from almost £10bn a year. However, UBS analysts have already stated that this growth target ‘cannot be pinpointed to anything more specific than modest annual expansion.’

Haleon will provide its first trading update in September 2022.

What will happen to GSK after the split?

Following the demerger, GSK will focus solely on biopharmaceuticals, developing vaccines and speciality medicines. Management has said that over the next 5-year period it expects to deliver compound annual growth in sales of more than 5% and adjusted operating profit of more than 10%.

GSK is due to announce its Q2 results on July 27, treating Haleon as a discontinued operation.

What will happen to GSK shares when the company splits?

When the company splits, GlaxoSmithKline shares will continue trading as usual under the ticker GSK. The company intends to carry out a consolidation to ensure the GSK share price is consistent pre- and post- separation, keeping the company’s earnings per share and share price comparable to previous reporting periods.

The split is costing GSK approximately £2.4 billion but will give the company a £7 billion pot of cash. GSK is expected to use the injection to develop its drugs pipeline in areas where it’s lagging behind competitors.

How to trade GSK and Haleon shares with City Index

You can speculate on whether GSK shares will rise or fall in the run up to the demerger with City Index in just four easy steps:

1. Open a City Index account, or log in if you’re already a customer
2. Search for ‘GSK’ in our award-winning platform
3. Choose your position and size, and your stop and limit levels
4. Place the trade

Once Haleon has listed on the LSE, you’ll be able to trade its shares in the same way.

Alternatively, you can try out share trading risk free by signing up for our demo trading account.