GSK Pfizer Joint Venture No Impact on Company Value

GlaxoSmithKline and Pfizer announced a consumer healthcare joint venture, but analysts don't expect any significant changes to fair value estimates for either company

Damien Conover, CFA 20 December, 2018 | 8:31AM

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GlaxoSmithKline (GSK) and Pfizer announced the creation of a consumer healthcare joint venture, followed by the potential separation of the entity, which we expect will drive better synergies and unlock value for both companies, but we don't expect any significant changes to our fair value estimates for either company.

The companies expect close to £500 million in cost synergies, which seems reasonable. Additionally, we believe the potential separation of the new joint venture could unlock value for both Pfizer and Glaxo, as consumer healthcare companies trade at higher valuation multiples than Big Pharma firms.

While the timing of the transactions is not fully clear, the formation of the joint venture should be completed by the second half of 2019, and a separation of the joint venture could happen two to three years later. From a moat standpoint, the joint venture would boast strong brand power, with annual sales of close to £10 billion and well-known products, such as Theraflu, Excedrin, Advil, and Centrum.

We expect the robust brand power to support strong competitive advantages for the new entity. Additionally, we don't expect the potential separation of the joint venture from Glaxo and Pfizer to affect the moats of the remaining firms' drug and vaccine operations, as the consumer products contributed a smaller amount of profits to the overall companies.

From a dis-synergy perspective, the potential separation of the consumer entity would erase the financial benefit of prescription to over-the-counter switches, which has been successful for drugs like respiratory drug Flonase.

After the likely separation of the consumer entity from Glaxo and Pfizer, we expect capital to shift back to the drug companies through an IPO or by adding debt to the consumer unit in a spin-out. We expect both drug firms to use the capital to acquire smaller firms with mid- to late-stage drugs in development in areas of unmet medical need.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
GlaxoSmithKline PLC1,846.00 GBX2.10

About Author

Damien Conover, CFA  is an equity analyst and associate director at Morningstar.

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