Blueprint
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For
period ending 19 December
2018
GlaxoSmithKline plc
(Name
of registrant)
980 Great West Road, Brentford, Middlesex, TW8 9GS
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or
will
file annual reports under cover Form 20-F or Form 40-F
Form
20-F x Form 40-F
--
Indicate
by check mark whether the registrant by furnishing the
information
contained in this Form is also thereby furnishing the
information
to the Commission pursuant to Rule 12g3-2(b) under the
Securities
Exchange Act of 1934.
Yes
No x
Issued: 19 December 2018, London UK - LSE
Announcement
GlaxoSmithKline plc and Pfizer Inc to form new world-leading
Consumer Healthcare Joint Venture
Transaction provides a unique opportunity to accelerate GSK's
strategy and create substantial value for shareholders
Lays foundation for separation of GSK to create two new UK-based
global companies focused on Pharmaceuticals/Vaccines and Consumer
Healthcare
GlaxoSmithKline
plc (LSE/NYSE: GSK) has reached agreement with Pfizer Inc to
combine their consumer health businesses into a new world-leading
Joint Venture, with combined sales of approximately £9.8
billion ($12.7 billion). GSK will have a majority controlling
equity interest of 68% and Pfizer will have an equity interest of
32% in the Joint Venture.
The
proposed all-equity transaction represents a compelling opportunity
to build on the recent buyout of Novartis' stake in GSK Consumer
Healthcare, to create a new world-leading consumer healthcare
business and to deliver further significant shareholder value. The
proposed transaction also supports GSK's key priority of
strengthening its pharmaceuticals business over the next few years
by increasing cashflows and providing an effective pathway through
the separation of GSK Consumer Healthcare to build further support
for investment in its R&D pipeline.
New Consumer Healthcare Joint Venture
The new
Joint Venture will be well-positioned to deliver stronger sales,
cash flow and earnings growth driven by category leading Power
Brands, science-based innovation and substantial cost synergies.
The combination will bring together two highly complementary
portfolios of trusted consumer health brands, including GSK's
Sensodyne, Voltaren and Panadol and Pfizer's Advil, Centrum and
Caltrate. The Joint Venture will be a category leader in Pain
Relief, Respiratory, Vitamin and Mineral Supplements, Digestive
Health, Skin Health and Therapeutic Oral Health. The Joint Venture
will be the global leader in OTC products with a market share of
7.3% ahead of its nearest competitor at 4.1% and have number 1 or 2
market share positions in all key geographies, including the US and
China.
The
proposed transaction is expected to realise substantial cost
synergies, with the Joint Venture expected to generate total annual
cost savings of £0.5 billion by 2022 for expected total cash
costs of £0.9 billion and non-cash charges of £0.3
billion. Planned divestments targeting around £1 billion of
net proceeds are expected to cover the cash costs of the
integration. Up to 25% of the cost savings are intended to be
reinvested in the business to support innovation and other growth
opportunities. Overall the Joint Venture will target an Adjusted
operating margin percentage in the 'mid-to-high 20's' by
2022.
GSK
expects the proposed transaction to be accretive to Total earnings
in the second full year following closing, reflecting the impact
and timing for the costs of integration; and to be accretive to
Adjusted earnings and free cashflow in the first full year after
closing.
Future separation
The
proposed transaction is transformational to the scale of GSK's
Consumer Healthcare business. Within 3 years of the closing of the
transaction, GSK intends to separate the Joint Venture via a
demerger of its equity interest and a listing of GSK Consumer
Healthcare on the UK equity market. Over this period, GSK will
substantially complete the integration and expects to make
continued progress in strengthening its Pharmaceuticals business
and R&D pipeline.
The
intended separation of the Group will allow the two resulting
companies to be established with appropriate capital structures for
their future investment needs and capital allocation priorities.
The new consumer healthcare company with its more durable cash
flows will be able to support higher leverage levels than the GSK
Group today, creating the opportunity on separation to reduce the
leverage in the new Pharmaceuticals/Vaccines company.
Dividend expectations
GSK
remains committed to its current dividend policy and confirms it
continues to expect to pay 80 pence per share in dividends for
2018. Recognising the significance of this proposed transaction and
the importance of dividends to shareholders, the company is today
confirming that it expects to pay dividends of 80 pence per share
for 2019.
Going
forward, the proposed transaction enhances prospects for the
Consumer Healthcare business and supports the development of GSK's
Pharmaceuticals business. With expected improvements in both
businesses, GSK expects to be well positioned to deliver returns to
shareholders alongside continued investment in its strategic
priorities.
Emma Walmsley, Chief Executive Officer, GSK,
said:
"Eighteen
months ago, I set out clear priorities and a capital allocation
framework for GSK to improve our long-term competitive performance
and to strengthen our ability to bring new breakthrough medicines
and better healthcare products to people around the world. We have
improved our operating performance and have set out a new approach
to R&D. We have also started to reshape the Group's portfolio
through prioritisation of R&D programmes, acquisitions such as
that proposed with the oncology biopharmaceutical company, TESARO,
the minority buy-out of the consumer healthcare business and a
series of non-core product divestments.
"The
transaction we have announced today is a unique opportunity to
accelerate this work. Through the combination of GSK and Pfizer's
consumer healthcare businesses we will create substantial further
value for shareholders. At the same time, incremental cashflows and
visibility of the intended separation will help support GSK's
future capital planning and further investment in our
pharmaceuticals pipeline.
"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.
"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."
Approvals and closing
The
proposed transaction is subject to approval by GSK shareholders and
conditional upon the receipt of certain anti-trust authority
approvals. Subject to these approvals, the transaction is expected
to close in the second half of 2019. The Board intends to recommend
that shareholders vote in favour of the proposed
transaction.
Analyst conference call details
09:00
UK Wednesday 19 December
Listen only line:
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Global access numbers
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Global access numbers
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Slides will be available on the GSK
website one hour prior to
the call.
Principal terms and conditions of the Transaction
New Joint
Venture
GSK and
Pfizer have today entered into an agreement under which, upon
closing of the proposed transaction, Pfizer will contribute its
consumer healthcare business to GSK's existing consumer healthcare
business in return for equity shares in this business. As a result,
a new Joint Venture will be created in which GSK will have a
controlling 68% equity interest and Pfizer a 32% equity
interest.
GSK and
Pfizer have provided customary and broadly reciprocal
representations, warranties and indemnities to each other in
respect of their respective businesses that will be included in the
Joint Venture, which are subject to customary limitations of
liability.
Combined
2017 global sales for the Joint Venture were approximately
£9.8 billion ($12.7 billion). The Joint Venture will be a
category leader in Pain Relief, Respiratory, Vitamin and Mineral
Supplements, Digestive Health, OTC Skin Health and Therapeutic Oral
Health and will have the largest global market share in OTC at 7.3%
ahead of its nearest competitor at 4.1%. The Joint Venture is
expected to have number 1 or 2 market share positions in all key
geographies, including the US, Western, Central and Eastern Europe,
China, India and Australasia.
The
Joint Venture will operate under the GSK Consumer Healthcare name
in all territories where GSK and Pfizer have a presence, with the
exception of GSK's interest in its listed subsidiary in Nigeria
which will be excluded from the Joint Venture. The assets within
the scope of, and the proceeds of, GSK's proposed divestment of
Horlicks and other Consumer Healthcare nutrition products to
Unilever will not be included in the Joint Venture.
Until
separation, the Joint Venture will be consolidated in GSK's
financial statements and is not expected to carry any external
debt.
Governance and
leadership
The
Joint Venture will be subject to a shareholders' agreement between
GSK and Pfizer, under which GSK will have 6 directors and Pfizer 3
directors on the board of the joint venture company. GSK will have
control of the joint venture company through the board, while
Pfizer will enjoy customary minority shareholder
protections.
Emma
Walmsley will be Chair of the new Joint Venture until separation.
Brian McNamara, currently CEO GSK Consumer Healthcare, will be CEO
of the new Joint Venture and Tobias Hestler, currently CFO GSK
Consumer Healthcare will be CFO.
Separation
rights
As
stated above the proposed transaction is transformational to the
scale of GSK's consumer healthcare business and following
substantial completion of the integration and further progress in
strengthening the pharmaceuticals pipeline, GSK intends to separate
the Joint Venture from GSK via a demerger of its equity interest to
GSK shareholders and a listing of the GSK Consumer Healthcare
business on the UK equity market. This is expected to be within 3
years of the closing of the transaction.
GSK
will have the sole right to decide whether and when to initiate a
separation and listing for a period of five years from closing of
the proposed transaction. GSK has also retained the right to sell
all or part of its stake in the Joint Venture in a contemporaneous
IPO. In the event of the separation and listing occurring in this
period, Pfizer has the option to participate through the demerger
of its equity interest in the Joint Venture to its shareholders or
the sale of its equity interest in a contemporaneous IPO. After the
fifth anniversary of closing of the proposed transaction, both GSK
and Pfizer will have the right to decide whether and when to
initiate a separation and listing of the Joint
Venture.
In
circumstances where Pfizer initiates a separation and listing of
the Joint Venture after the fifth anniversary of closing of the
proposed transaction, GSK will have the right to acquire all (but
not part) of Pfizer's equity interest in the Joint Venture at fair
market value. In addition, from the fifteenth anniversary of
closing of the proposed transaction, GSK will have the right to
acquire all (but not part) of Pfizer's equity interest in the Joint
Venture at fair market value.
As a
part of any separation and listing, the Joint Venture will incur
borrowings so as to result in an initial ratio of net debt to the
aggregate of the Joint Venture's last four quarters' Adjusted
EBITDA of between 3.5x and 4.0x. The cash proceeds of this
recapitalisation will be distributed by the Joint Venture to GSK
and Pfizer in proportion to their respective interests in the Joint
Venture prior to any separation and listing.
In the
event of any separation and listing, GSK also has the right to
determine the Joint Venture's prospective dividend policy provided
the pay-out ratio is between 30% and 50% of the aggregate of the
Joint Venture's last four quarters' Adjusted profit attributable to
shareholders.
Conditions to
closing
Pfizer
is treated as a related party of GSK for the purposes of the UK
Listing Rules by virtue of its interest in ViiV Healthcare and, as
such, the proposed transaction is conditional upon the approval of
GSK's shareholders at a general meeting. GSK has agreed that its
Board will recommend that shareholders vote in favour of the
resolution approving the Proposed Transaction, subject to
provisions that allow the recommendation to be withdrawn on account
of fiduciary duties. The proposed transaction is also conditional
on there being no governmental orders restraining or prohibiting
the transaction and certain anti-trust authority
approvals.
Expected timetable to
closing
A
circular setting out further details on the proposed transaction,
including the resolution seeking shareholder approval, will be sent
to GSK shareholders in the first quarter of 2019. Closing of the
proposed transaction is currently expected to occur during the
second half of 2019, subject to shareholder approval and relevant
anti-trust approvals.
Break fee
GSK has
agreed to pay a break fee of US$900 million if (i) the Board
changes, withdraws or qualifies its recommendation; (ii)
shareholders vote on the proposed transaction and do not approve
it; or (iii) shareholders do not approve the proposed transaction
by 30 September 2019 (or, at either GSK's or Pfizer's option, 31
December 2019 or 31 March 2020 in the case of delayed anti-trust
approvals).
By
virtue of Pfizer being a related party of GSK under the UK Listing
Rules, the break fee constitutes a smaller related party
transaction within LR11.1.10R of the UK Listing Rules. GSK
has obtained written confirmation from Citi and J. P. Morgan
Cazenove that the terms of the break fee are fair and reasonable so
far as GSK's shareholders are concerned.
Advisors
GSK has
been advised by Citi, who has been acting as lead advisor, J. P.
Morgan Cazenove and Greenhill & Co. Slaughter and May
and Kirkland & Ellis LLP have provided legal
advice.
Advice to the
Board
The
Board, which has been so advised by Citi and J. P. Morgan Cazenove,
considers the terms of the proposed transaction to be fair and
reasonable so far as shareholders are concerned. In providing their advice to the
Board, Citi and J. P. Morgan Cazenove have taken into account the
Board's commercial assessment of the proposed
transaction.
Information on GSK's consumer
healthcare business
As at
31 December 2017, the value of the gross assets of GSK's consumer
healthcare business to be contributed to the new Joint Venture was
£16,071 million. In the financial year ended 31 December 2017,
that business had sales of £7,110 million, Adjusted operating
profit of £1,254 million, Total operating profit of £891
million and Total profit before tax of £884
million.
Information on Pfizer's consumer
healthcare business
As at
31 December 2017, the value of the gross assets of Pfizer's
consumer healthcare business to be contributed to the new Joint
Venture was $10,026 million. In the financial year ended 31
December 2017, that business had sales of $3,469 million, Adjusted
operating profit of $600 million, Total operating profit of $471
million and Total profit before tax of $471 million.
Sources of information and bases of
calculation
Unless
otherwise stated, the financial information in this announcement
relating to GSK's contributed consumer healthcare business is based
on the audited consolidated financial statements of GlaxoSmithKline
Consumer Healthcare Holdings Limited for the year ended 31 December
2017 (from which Novartis was bought out in June 2018), which were
prepared under IFRS, adjusted for the perimeter changes that GSK
will make to the business contributed to the new Joint Venture, and
that relating to Pfizer's contributed consumer healthcare business
is extracted from carve out accounts prepared by Pfizer under US
GAAP, adjusted to exclude certain items that were allocated to the
business by Pfizer in preparing those accounts but which are not
within the perimeter of the business being contributed to the new
Joint Venture. Figures in respect of the combined sales of the new
Joint Venture have been calculated by aggregating the 2017 sales of
GSK's consumer healthcare business, prepared under IFRS, and the
2017 sales of Pfizer's consumer healthcare business, prepared under
US GAAP; no reconciliation from US GAAP to IFRS has been
performed. Conversions use an exchange rate of
£1=US$1.30, being the average exchange rate for
2017.
GSK
uses a number of adjusted, non-IFRS, measures to report the
performance of its business, as described on page 37 of GSK's Q3
2018 results, including Adjusted results, free cash flow and CER
growth rates. Financial information in this announcement relating
to Pfizer is presented on a similar basis. Non-IFRS measures may be
considered in addition to, but not as a substitute for or superior
to, information presented in accordance with IFRS.
GSK enquiries:
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UK Media enquiries:
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Simon Steel
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+44 (0) 20 8047 5502
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(London)
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Simon Moore
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+44 (0) 20 8047 5502
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(London)
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US Media enquiries:
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Sarah Spencer
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+1 215 751 3335
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(Philadelphia)
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Analyst/Investor enquiries:
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Sarah Elton-Farr
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+44 (0) 208 047 5194
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(London)
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Danielle Smith
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+44 (0) 20 8047 7562
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(London)
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James Dodwell
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+44 (0) 20 8047 2406
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(London)
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Mel Foster-Hawes
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+44 (0) 20 8047 0674
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(London)
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Jeff McLaughlin
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+1 215 751 7002
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(Philadelphia)
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This
announcement contains inside information for the purposes of
Article 7 of EU Regulation 596/2014. The person responsible for
arranging the release of this announcement on behalf of GSK is V.A.
Whyte, Company Secretary.
Information regarding
forward-looking statements
This
announcement includes statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can
be identified by the use of forward-looking terminology, including
the terms "believes", "estimates", "plans", "projects",
"anticipates", "expects", "intends", "may", "will", or "should" or,
in each case, their negative or other variations or comparable
terminology, or by discussions of strategy, plans, objectives,
goals, future events or intentions. These forward-looking
statements include matters that are not historical facts. They
appear in a number of places throughout this announcement and
include, but are not limited to, statements regarding GSK's
intentions, beliefs or current expectations concerning, among other
things, GSK's business, results of operations, financial position,
dividend payments, prospects, growth, strategies and the industry
in which it operates. By their nature, forward-looking statements
involve risk and uncertainty because they relate to future events
and circumstances. Forward-looking statements are not guarantees of
future performance and the actual results of GSK's operations and
financial position, and the development of the markets and the
industry in which GSK operates, may differ materially from those
described in, or suggested by, the forward-looking statements
contained in this announcement. In addition, even if the results of
operations, financial position and the development of the markets
and the industry in which GSK operates are consistent with the
forward-looking statements contained in this announcement, those
results or developments may not be indicative of results or
developments in subsequent periods. A number of factors could cause
results and developments to differ materially from those expressed
or implied by the forward-looking statements including, without
limitation, general economic and business conditions, industry
trends, competition, changes in regulation, currency fluctuations,
changes in its business strategy, political and economic
uncertainty and other factors discussed in this
announcement.
Forward-looking
statements may, and often do, differ materially from actual
results. Any forward looking statements in this announcement speak
only as of their respective dates, reflect GSK's current view with
respect to future events and are subject to risks relating to
future events and other risks, uncertainties and assumptions
relating to GSK's operations, results of operations and growth
strategy. Factors that may affect GSK's operations include, but are
not limited to, those described under Item 3.D "Principal risks and
uncertainties" in GSK's Annual Report on Form 20-F for 2017.
Subject to the requirements of the Market Abuse Regulation, the
Financial Conduct Authority ("FCA"), the London Stock Exchange, the
Listing Rules and the Disclosure Guidance and Transparency Rules
(and/or any regulatory requirements) or applicable law, GSK
explicitly disclaims any obligation or undertaking publicly to
update or release the result of any revisions to any
forward-looking statements in this announcement that may occur due
to any change in GSK's expectations or to reflect events or
circumstances after the date of this announcement. Investors
should, however, consult any additional disclosures that GSK may
make in any documents which it publishes and/or files with the US
Securities and Exchange Commission.
All
expectations and targets regarding future performance should be
read together with "Assumptions related to 2018 guidance and
2016-2020 outlook" on page 38 of GSK's Q3 2018 results. No
statement in this announcement is intended as a profit forecast or
profit estimate and no statement in this document should be
interpreted to mean that the earnings per share of GSK, as altered
by the transaction will necessarily match or exceed the historical
or published earnings per share of GSK or the relevant entities
which form the basis for the transaction.
Cautionary
statement
The
release, publication or distribution of this announcement in
jurisdictions other than the United Kingdom may be restricted by
law and therefore any persons who are subject to the laws of any
jurisdiction other than the United Kingdom should inform themselves
about, and observe, any applicable requirements. This announcement
has been prepared for the purposes of complying with the Listing
Rules and the information disclosed may not be the same as that
which would have been disclosed if this announcement had been
prepared in accordance with the laws and regulations of any
jurisdiction outside of England and Wales.
This
announcement is not intended to, and does not constitute, or form
part of, any offer to sell or an invitation to purchase or
subscribe for any securities or a solicitation of any vote or
approval in any jurisdiction. GSK shareholders are advised to read
carefully the formal documentation in relation to the transaction
once it has been despatched. Any response to the proposal should be
made only on the basis of the information in the formal
documentation to follow.
Citigroup
Global Markets Limited ("Citi"), which is regulated in the United
Kingdom by the FCA and the PRA, is acting exclusively for GSK as
joint sponsor and joint financial adviser and for no one else in
connection with the transaction, and will not regard any other
person (whether or not a recipient of this document) as a client in
relation to the transaction and will not be responsible to anyone
other than GSK for providing the protections afforded to clients of
Citi nor for providing advice in relation to the transaction or any
other matter referred to in this announcement. Save for the
responsibilities and liabilities, if any, of Citi under the
Financial Services and Markets Act 2000 ("FSMA") or the
regulatory
regime
established thereunder, Citi assumes no responsibility whatsoever
and makes no representations or warranties, express or implied, in
relation to the contents of this document, including its accuracy,
completeness or verification, or for any other statement made or
purported to be made by GSK, or on GSK's behalf, or by Citi, or on
Citi's behalf, and nothing contained in this document is, or shall
be, relied on as a promise or representation in this respect,
whether as to the past or the future, in connection with GSK or the
transaction. Citi accordingly disclaims to the fullest extent
permitted by law all and any responsibility and liability whether
arising in tort, contract or otherwise which it might otherwise be
found to have in respect of this announcement or any such
statement.
J.P.
Morgan Securities plc, which conducts its UK investment activities
as J.P. Morgan Cazenove and which is authorised in the United
Kingdom by the Prudential Regulation Authority ("PRA") and
regulated in the United Kingdom by the Financial Conduct Authority
("FCA") and the PRA, is acting exclusively for the Company as joint
sponsor and joint financial adviser and for no one else in
connection with the Transaction, and will not regard any other
person (whether or not a recipient of this document) as a client in
relation to the Transaction and will not be responsible to anyone
other than the Company for providing the protections afforded to
clients of J.P. Morgan Cazenove nor for providing advice in
relation to the Transaction or any other matter referred to in this
document. Save for the responsibilities and liabilities, if any, of
J.P. Morgan Cazenove under FSMA or the regulatory regime
established thereunder, J.P. Morgan Cazenove assumes no
responsibility whatsoever and makes no representations or
warranties, express or implied, in relation to the contents of this
document, including its accuracy, completeness or verification, or
for any other statement made or purported to be made by the
Company, or on the Company's behalf, or by J.P. Morgan Cazenove, or
on J.P. Morgan Cazenove's behalf, and nothing contained in this
document is, or shall be, relied on as a promise or representation
in this respect, whether as to the past or the future, in
connection with the Company or the Transaction. J.P. Morgan
Cazenove accordingly disclaims to the fullest extent permitted by
law all and any responsibility and liability whether arising in
tort, contract or otherwise which it might otherwise be found to
have in respect of this document or any such
statement.
Greenhill
& Co. International LLP ("Greenhill"), which is regulated in
the United Kingdom by the FCA, is acting exclusively for GSK as
joint financial adviser and for no one else in connection with the
transaction, and will not regard any other person (whether or not a
recipient of this document) as a client in relation to the
transaction and will not be responsible to anyone other than GSK
for providing the protections afforded to clients of Greenhill nor
for providing advice in relation to the transaction or any other
matter referred to in this announcement. Save for the
responsibilities and liabilities, if any, of Greenhill under FSMA
or the regulatory regime established thereunder, Greenhill assumes
no responsibility whatsoever and makes no representations or
warranties, express or implied, in relation to the contents of this
document, including its accuracy, completeness or verification, or
for any other statement made or purported to be made by GSK, or on
GSK's behalf, or by Greenhill, or on Greenhill's behalf, and
nothing contained in this document is, or shall be, relied on as a
promise or representation in this respect, whether as to the past
or the future, in connection with GSK or the transaction. Greenhill
accordingly disclaims to the fullest extent permitted by law all
and any responsibility and liability whether arising in tort,
contract or otherwise which it might otherwise be found to have in
respect of this announcement or any such statement.
Registered in England &
Wales:
No. 3888792
Registered Office:
980 Great West Road
Brentford, Middlesex
TW8 9GS
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorised.
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GlaxoSmithKline plc
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(Registrant)
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Date: December
19, 2018
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By: VICTORIA
WHYTE
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Victoria Whyte
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Authorised
Signatory for and on
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behalf
of GlaxoSmithKline plc
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