GlaxoSmithKline shares spike 7% as it agrees merger with Pfizer

Consumer Healthcare units from both companies will be combined, delivering massive cost savings.

Article updated: 19 December 2018 10:00am Author: Helal Miah

• The rivals are to merge their consumer healthcare units giving GSK 68% of the new business.
• The merger is set to deliver cost savings of £500m by 2022 and will allow GSK to be a more focussed group for developing pharmaceutical and vaccines.
• We continue to recommend the shares as a ‘buy’ for investors seeking income and willing to accept a lower level of risk.

The restructuring under Emma Walmsley continues following on from the recent sale of its Indian business to Unilever and the acquisition of TESORO, both of which were aimed at focussing the group towards pharmaceuticals and vaccines. This morning’s news continues in that strategic path with the announcement that its consumer healthcare unit will be merged with Pfizer’s consumer healthcare unit, an all equity deal that will leave GSK owning 68% of the new entity. This new structure should deliver £500m of cost savings per annum by 2022 with cash costs of £0.9m part of which will be funded by further divestments in time.

The new GSK Consumer Healthcare company will have more durable cash flows and should be able to sustain higher leverage ratios, which should leave the remaining pharmaceuticals division with less leverage and enable it to invest further into R&D to develop its portfolio of drugs further. Within 3 years of this deal closing, management intend to separate the joint venture through a separate listing on the London market.

While the acquisition of TESORO has been questioned given the premium, this deal has certainly been welcomed by the market lifting the shares higher by roughly 7% this morning. We, along with other major investors support the management’s view that the deal will allow GSK to be a more focussed group for developing pharmaceutical and vaccines. The dividend policy for the next few years is not expected to change and we continue to recommend the shares as a ‘buy’ for investors seeking income and willing to accept a lower level of risk.


All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.