Project Description

Glaxo/Pfizer Consumer Healthcare Joint Venture Spin-off Notes

July 1, 2021 Update

June 23, 2021 – Update

  • GSK recently hosted its analyst day (with a 129 page slide deck!).
  • Some key details:
    • The spin-off will happen by the middle of 2022 (consistent with prior guidance).
    • The dividend will decrease by 31% on a combined basis. GSK RemainCo will distribute 40% to 60% of its earnings (down from ~80% currently).
    • GSK will spin-off 80% of its stake in the Consumer business.
      • Prior to spin-off, it will receive a 8BN pounds.
      • Shortly after the spin-off, it will monetize the remaining 20% stake in the business that it owns.
  • Remainco outlook:
    • GSK’s goal is to grow revenue by 5% annually and profit by 10% from 2021 to 2025. This is above consensus expectations.
    • Dolutegravir patent expiry in 2028.
    • Leverage will be up to 2.0x (net debt to EBITDA).
    • Want to increase operating margin from mid 20s to >30%.
    • Spend how much on R&D?
  • Spin-off outlook:
    • As a reminder, the consumer spin-off is a JV between Pfizer and GSK.
    • GSK owns 68% of the JV. Pfizer owns the remaining 32%.
    • GSK has been optimizing the consumer spin-off. For example, it has divested/reviewed for divestiture several brands.
    • In 2020, core sales (excluding divestitures/brands under review) grew 4%.
    • Core sales are 9.5BN pounds. Consumer operating margin is 22.1%. Imples 2.1BN GBP of operating profit.
    • Jefferies estimates the consumer JB is worth 46BN which implies a 22x EV/EBIT multiple. (PG trades at 23x).
    • Spin-off will have leverage of up to 4.0x net debt to adjusted EBITDA.
  • On a SOTP basis, I think GSK is worth ~$52, ~30% upside.

  • I think the options may be more attractive than owning the stock.

 

 

 

February 3, 2021 – Update

  • Article arguing GSK is undervalued.
  • Spin-off won’t become publicly traded until July 2022
  • This a good article diving into what the consumer business should be valued at.
    • Author argues GSK share of consumer business should be worth 35.7 billion GBP assuming it trades at P&G’s multiple.

 

 

 

 

 

 

 

 

 

 

    • He values the pharma and vaccine business at an EV/EBIT multiple of 17x which yields an enterprise value of 122.3 billion GBP.

 

 

 

 

 

 

 

 

 

 

 

 

    • Factoring 23 billion GBP of debt and fair enterprise value is ~158 billion GBP versus current enterprise value of 94 billion GBP.
    • Looks interesting.  In the meantime GSK pays a 5% dividend.
    • Using the assumptions above, looks like there is almost 100% upside. I need to double check all these assumptions, but it looks interesting.

 

 

 

 

 

 

 

 

December 16, 2020 – Update

December 19, 2019 – Update

  • On December 19, 2018, GlaxoSmithKline (GSK) and Pfizer (PFE) announced that they would be merging their consumer health businesses into a joint venture. The joint venture is expected to close in the second half of 2019.
  • Within three years of closing, the joint venture will be spun off into a separate public company. The joint venture will have sales of $12.7BN. GSK will have a 68% controlling equity stake while PFE will own the remaining 32%.  The combination will bring together a large category of consumer health brands, including GSK’s Sensodyne, Voltaren and Panadol and Pfizer’s Advil, Centrum, and Caltrate.
  • The Joint Venture will be the global leader in OTC products with a market share of 7.3% ahead of its nearest competitor at 4.1%.
  • Overview of transaction.