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GSK's drugs arm to get $11 billion booster from consumer spin-off

·3-min read

By Ludwig Burger and Pushkala Aripaka

(Reuters) -GSK set out plans on Wednesday to turn its consumer healthcare arm into a separately listed company, in a move that will deliver an 8 billion pound ($11 billion) windfall and other financial benefits for its underperforming drugs business.

Investors have been waiting for details of the separation, which was first unveiled in December 2018 when GSK agreed a joint venture for consumer brands such as Sensodyne toothpaste and Advil painkillers with Pfizer.

The British group also gave details of a research pipeline which it says has benefitted from the restructuring work of chief scientist Hal Barron, but said it would pursue deals as well to further improve its drug development prospects.

The split planned for the middle of next year will allow GSK to focus on its core drugs and vaccines business, which has been hit by a lack of fast-growing products and patients deferring treatments due to the COVID-19 pandemic, weighing on its shares.

Despite being the world's biggest vaccines maker by sales, GSK has also been beaten by the likes of Pfizer, Moderna and AstraZeneca to making a COVID-19 vaccine.

"I am very aware that GSK shares have underperformed for a long period," CEO Emma Walmsley told a news conference, adding she would stay at the helm of the pharma and vaccines business called New GSK.

"Together, we are now ready to deliver a step-change in growth for New GSK and unlock the value of Consumer Healthcare," said Walmsley, who has been in charge since 2017.

Pressure has been increasing on the CEO following a report in April that activist investor Elliott had taken a multibillion-pound stake in GSK.

SALES GROWTH

GSK is currently valued at about 10.3 times its forecast core earnings, including net debt, below an average of more than 12 for global pharma majors, Refinitiv Eikon data shows.

GSK forecast the pharmaceuticals business would increase sales by more than 5% a year to 2026, broadly in line with analysts' current expectations.

It said that business was expected to receive a dividend of up to 8 billion pounds from the consumer arm, which will have its own listing on the London Stock Exchange.

As a result, the consumer operations will take on a higher share of debt of up to four times its adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA).

New GSK will have a ratio that is below the current group level of about two.

For even more financial fire power, the combined 2022 dividend of the two businesses will be reduced by 31% and, once separated, New GSK will distribute 40%-60% of earnings, down from more than 80% expected for the group this year.

GSK shares were up 2.3% at 1343 GMT, as analysts pointed to a smaller dividend cut than some had feared.

GSK shareholders will receive stock in the new consumer healthcare group amounting to at least 80% of the 68% stake that GSK currently owns in it.

New GSK aims to sell the its remaining stake, described as a short-term investment, "in a timely manner," the group said. Based on brokerage Jefferies' valuation of 45 billion pounds for the whole consumer unit, that would be worth about 6 billion.

Pfizer, owner of the remaining 32%, has also said it would seek an exit.

"We will continue to monitor and evaluate all alternatives," it said on Wednesday.

($1 = 0.7161 pounds)

(Reporting by Pushkala Aripaka in Bengaluru and Ludwig Burger in FrankfurtEditing by Keith Weir and Mark Potter)

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