Shares in GlaxoSmithKline PLC (LON:GSK) topped the FTSE 100 leaderboard on Wednesday after the drugs giant confirmed it was merging its consumer healthcare businesses with Pfizer Inc's (NYSE:PFE) rival operation.
The deal, which gives GSK 68% of the combined entity, brings together products such as Panadol and Advil with combined sales of US$12.7bn.
Cost savings and synergies will be around US$650mln annually.
There are plans further down the line to separately list the enlarged business, which will be named GSK Consumer Healthcare.
Goal to create two exceptional companies
"With 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 approach focused on science related to the immune system, use of genetics and advanced technologies, and a new world-leading consumer healthcare company,” boss Emma Walmsley said.
"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."
Apart from GSK's Nigerian subsidiary, which is excluded from the deal, it will operate in all countries where GSK and Pfizer have a presence.
Analyst sees "strategic rationale"
GSK will have six directors on the board, while Pfizer will have three. Peter Welford from the American broker Jefferies said he saw the “strategic rationale” for the deal.
Cost saving would be significant, while the consumer healthcare division could support higher debt levels than the rump of GSK, he added. As a result, the transaction would “deleverage” the pharma and vaccines operation.
The analyst was also heartened by the news Glaxo had confirmed a 2018 dividend payment would be 80p and further it was aiming for the same level of payout in 2019.
In mid-morning trading in London, Glaxo shares were 7% higher at 1,550p
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