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London stock market listing of up to £45bn looms as GSK investors vote for demerger

July 10, 2022
Life sciences

Investors in the British pharmaceuticals giant GSK have voted to approve a demerger of its consumer brands into a new company, Haleon, firing the starting gun on the largest London stock market listing in a decade.

Shares in Haleon are scheduled to start trading on Monday 18 July, after investors in GSK – previously GlaxoSmithKline – voted to approve the demerger. The FTSE 100 company won 99.8% of the votes cast at a general meeting on Wednesday at a hotel by London’s Heathrow airport.

Haleon, whose portfolio of brands will include Sensodyne toothpaste and Advil and Panadol painkillers, is expected to seek a valuation of as much as £45bn.

The approval paves the way for a listing which will be used to gauge the financial strength of the City of London after Brexit, with the formation of a company all but certain to join its current owner on the FTSE 100 index of blue-chip shares.

The last stock market listing on a similar scale was mining and commodity company Glencore’s entry at a £38bn market value in 2011.

London looks set to lose out to New York for the planned return to public markets of Arm, the Cambridge chip designer owned by Japan’s Softbank. The UK government has lobbied hard for Arm to have a secondary listing in London, amid concerns it could lose out on another large UK-based flotation.

The London Stock Exchange has been described as in “secular decline”, with a fall in the number of listed companies from more than 4,400 in the early 1960s to fewer than 1,200 today.

Morrison’s supermarket exited the exchange last year, the biggest in a wave of private equity takeovers triggered when share prices fell during the pandemic.

Haleon will employ 23,000 employees across 100 countries. Its operations made revenues of £9.5bn and profits of £1.6bn in 2021, according to its prospectus for the share offer.

Haleon – whose name references “hale”, a synonym for healthy, and “leon”, which contains the Latin for “lion” – has nine multinational brands, also including Voltaren pain relief and Centrum supplements, which account for nearly 60% of revenues.

Sir Dave Lewis, the former chief executive of Tesco, has been designated as the non-executive chair of the company. Brian McNamara, a former Procter & Gamble and Novartis executive, will continue to lead the company, having led it as a division of GSK since 2016.

Bankers, lawyers and advisers will rake in as much as £117m in transaction costs related to the demerger, according to the prospectus.

GSK board members, including chief executive Emma Walmsley, faced a mixed reception at the meeting. One individual shareholder called for a round of applause for carrying out the demerger, but others questioned the logic of the deal and whether it was a mistake to turn down a £50bn offer at the end of last year from Unilever, another FTSE 100 consumer goods company.

Analysts at Credit Suisse have since ascribed Haleon an equity valuation of £33bn, while other analysts value it at up to £40bn, plus a debt pile worth more than £10bn after paying dividends worth £7bn to GSK and £3bn to Pfizer.

GSK had argued Unilever’s bid undervalued the company – although that was before the prospect of rising interest rates hit global stock market indices, and the energy price shock threatened to cause recessions across the world.

“I think it is really a disservice to the shareholders to have to suffer such a consequence,” said one shareholder.

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However, Sir Jonathan Symonds, GSK’s chair, said Haleon had a “very competitive growth profile” and that its sales would prove resilient in the context of rising inflation in many economies around the world.

Haleon’s products, which are sold over-the-counter without prescription, will provide a “very quick and good way that consumers can get access to medicines”, he said.

“We stand here poised with two very attractive companies with the opportunity to grow,” Symonds said, referring to GSK and Haleon.

After the demerger is complete, GSK shareholders will own 54.5% of Haleon, while GSK will still own about 6% and control a further 7.5%.

GSK’s pharma rival Pfizer will initially own nearly a third of the company, which was formed in 2019 as a joint venture, albeit with the US company owning a minority. Pfizer has said it will gradually sell down its stake after the listing.

by Jasper Jolly


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