GSK expects to spin off Haleon consumer business in July

GlaxoSmithKline expects to spin off its consumer healthcare joint venture Haleon in July, as the UK drugmaker presses on with plans for the largest demerger in Europe in the past 20 years.

Haleon — which will be the largest London listing for a decade — forecasts “moderate sustainable expansion” of adjusted operating margin in the medium term, after lifting the margin in the past two years despite the adverse impact of the pandemic. The company expects to increase sales by 4 to 6 per cent in the medium term, from almost £10bn a year.

The detailed spin-off plan, published on Monday, comes after GSK rejected a £50bn offer for the business from Unilever late last year, arguing that it undervalued the company. After shareholder pressure, Unilever has said it will not bid more for the unit.

Emma Walmsley, GSK chief executive, described the analyst day on Monday as an “important milestone”. 

“It comes ahead of what promises to be the most significant corporate change for GSK in the last 20 years, to create two new growth companies that will positively impact the health of billions of people,” she said.

Despite uncertainty in the markets because of the war in Ukraine, Walmsley said GSK was “extremely confident” that Haleon would be spun off in July. Iain Mackay, chief financial officer, stressed that it would be a demerger to existing shareholders, rather than making a new market in an initial public offering. The company will issue its prospectus in June.

Walmsley is under pressure from activist investors including US hedge fund Elliott Management who are questioning her ability to deliver a more productive drug pipeline.

The new GSK will be able to spend proceeds from the spin-off — including a dividend of more than £7bn and a 20 per cent stake — on research and development, including potentially acquisitions. But it will also leave the pharma and vaccines business more exposed to investor scrutiny.

Haleon is a joint venture between majority owner GSK and US drugmaker Pfizer, which includes consumer healthcare assets acquired from Novartis. The owner of brands such as Sensodyne, Panadol and Centrum had identified opportunities in natural products and from switching prescription drugs to over-the-counter medicines.

Brian McNamara, the future Haleon chief executive, who runs the unit as part of GSK, said the company would have an advantage in a £150bn market already growing 3 to 4 per cent because it is 100 per cent focused on consumer health.

“The global focus on health and wellness is only set to increase significant demand coming from an ageing population, an emerging middle class, and from sizeable unmet consumer needs.”

Haleon will have net debt to earnings before interest, tax, depreciation and amortisation of up to 4 times. On Monday, it said it would pay the debt down so this ratio would drop to up to 3 times by 2024.

The company said it had saved an additional £100mn in annual cost synergies from the integration of Pfizer’s consumer business, bringing it to a total of £600mn, which will largely offset the additional annual expenses of the spun-off company in 2022.

Haleon guided to a dividend at the lower end of the 30 to 50 per cent payout ratio range, subject to approval by the new board, which will be chaired by former Tesco chief executive Dave Lewis.