GlaxoSmithKline and Pfizer agree £10bn healthcare merger

GlaxoSmithKline (Amsterdam: GO8.AS - news) (GSK) is to merge its consumer healthcare unit with that of rival Pfizer (NYSE: PFE - news) , to create a new market leader with almost £10bn in annual sales.

The UK pharmaceutical firm - behind many well-known brands including Aquafresh toothpaste, Panadol and Beechams cold and flu remedies - said it would control 68% of the joint venture.

Pfizer - best known for Viagra and Anadin painkillers - would own the rest, though GSK added that the all-equity deal "lays the foundation" for it to spin off the healthcare arm - as shareholders had demanded of the company.

Glaxo's stock climbed nearly 4% on Wednesday.

GSK said it planned to create two separate UK-based companies - one focused on pharmaceuticals and vaccines and the other on consumer healthcare - within three years of completing the tie-up.

GSK said the merger was set to deliver cost savings of £500m by 2022 and admitted there would be job losses under the programme.

Chief (Taiwan OTC: 3345.TWO - news) executive Emma Walmsley said: "Obviously there's going to be some impact on people.

"That's something we are working through and we will certainly be talking to our employees before we start talking about that in any way publicly."

The tie-up was announced nine months after fellow UK drug firm RB left the race for Pfizer's consumer arm - leaving the door open for GSK.

Ms Walmsley said: "Eighteen months ago, I set out clear priorities and a capital allocation framework for GSK to improve our long-term competitive performance and to strengthen our ability to bring new breakthrough medicines and better healthcare products to people around the world."

She (Munich: SOQ.MU - news) added: "The transaction we have announced today is a unique opportunity to accelerate this work.

"Through the combination of GSK and Pfizer's consumer healthcare businesses we will create substantial further value for shareholders.

"At the same time, incremental cashflows and visibility of the intended separation will help support GSK's future capital planning and further investment in our pharmaceuticals pipeline.

"With (Other OTC: WWTH - news) our future intention to separate, the transaction also presents a clear pathway forward for GSK to create a new global pharmaceuticals/vaccines company, with an R&D (research and development) approach focused on science related to the immune system, use of genetics and advanced technologies, and a new world-leading consumer healthcare company.

"Ultimately, our goal is to create two exceptional, UK-based global companies, with appropriate capital structures, that are each well positioned to deliver improving returns to shareholders and significant benefits to patients and consumers."

Commenting on the planned GSK split George Salmon, equity analyst at Hargreaves Lansdown (Frankfurt: DMB.F - news) , said: "The separation will take away the steady cash flows of the consumer business, meaning there's more pressure on the men and women in white coats to deliver the next generation of blockbusters.

"However, the potential to shift significant amounts of debt onto the cash generative consumer business should take the strain off the balance sheet, and thus buy valuable time for the pipeline to deliver.

"There's also the fact that as a specialist pharma group, investors can be more confident GSK can get better results from the labs.

"In the short-term, teaming up with Pfizer means GSK will become over the counter market leader in pretty much all major geographies around the world, and the partnership should bring significant cost savings too.

"Still though, all deals can be made to look good on paper - the challenge will be delivering smooth execution of those planned savings."