What's going on?
Hot on the heels of its $5 billion acquisition of biotech firm Tesaro and the sale of its nutrition business, there’s more big news from GlaxoSmithKline (GSK). The British pharmaceutical company announced a major partnership with American rival Pfizer on Wednesday.
What does this mean?
The new venture will merge both companies’ consumer health businesses into a single entity – combining GSK’s Panadol and Nicorette brands with the likes of Pfizer’s Advil and ChapStick. With approximately $12 billion in annual revenue and a 7% market share, it’ll be the world’s largest producer of non-prescription medicines.
GSK, contributing the bigger brands, is set to own 68% of the newly created company, with Pfizer owning the rest. Annual cost synergies of about $630 million are expected within three years – after which the baby giant will likely be listed on the UK stock market.
Why should I care?
For markets: Investors getting the GSK(s) they want.
GSK’s shares have been underperforming for some time – and investors have put pressure on the company to split itself up in order to run more efficiently (and profitably). The company’s recently appointed CEO considered buying Pfizer’s consumer healthcare business outright earlier this year, but instead took full control of a previous joint venture. Wednesday’s news is GSK’s first step towards separating into two halves: one focused on consumer health and the other on prescription drugs.
The bigger picture: The healing dealing may have just begun…
The merger will allow GSK to double down on its Tesaro-boosted pharmaceutical activity. This expensive, research-intensive business relies on successfully developing (and getting approved) disease treatments – and it doesn’t always work out. But without the dependable revenues of a consumer healthcare wing, there’ll be less ready cash to cover any expensive failures. A couple of wrong moves, and the new GSK could once again find itself a potential takeover target (tweet this).