REG - GSK PLC - Demerger update: Submission of Documents to FCA

GSKAnnouncement

01/06/2022 07:00

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RNS Number : 5323N  GSK PLC  01 June 2022

Issued: 1 June 2022, London UK - LSE announcement

 

Update: Proposed demerger of the Consumer Healthcare business from GSK to form
Haleon

 

On 23 June 2021 at its Investor Update, GSK plc ("GSK" or the "Company")
confirmed its intention to separate its Consumer Healthcare business from the
GSK Group to form Haleon plc ("Haleon"), an independent listed company. It is
proposed that the separation will be effected by way of a demerger (the
"Demerger") of at least 80 per cent. of GSK's 68 per cent. holding in the
Consumer Healthcare business to GSK shareholders. The Consumer Healthcare
business is currently a joint venture between GSK and Pfizer Inc ("Pfizer"),
with GSK holding a majority controlling interest of 68 per cent. and Pfizer
holding 32 per cent.

 

GSK today confirms that the Circular in relation to the proposed Demerger, the
consolidation of GSK shares (the "GSK Share Consolidation") and certain new
arrangements with Haleon and Pfizer to give effect to the Demerger (the
"Related Party Transactions"), as well as the Prospectus in relation to the
proposed admission of the Haleon ordinary shares, have each been submitted to
the Financial Conduct Authority ("FCA") for approval.  It is expected that
the Haleon ordinary shares will be admitted to the Premium listing segment of
the Official List of the FCA and admitted to trading on the Main Market of the
London Stock Exchange on Monday 18 July 2022. Application will also shortly be
made to list American Depositary Shares ("ADSs") representing Haleon ordinary
shares on the New York Stock Exchange ("NYSE")(( 1 )).

 

The proposed Demerger is the most significant corporate change for GSK in the
last 20 years, creating two new leading companies, each with clear targets for
growth and the ability to positively impact the health and lives of billions
of people.

 

Following the Demerger, GSK will focus purely on biopharmaceuticals,
prioritising investment towards the development of innovative vaccines and
specialty medicines. Its R&D approach will continue to focus on the
science of the immune system, use of human genetics and advanced technologies.
Over the next five-year period, GSK expects to deliver compound annual growth
in sales and adjusted operating profit of more than 5 per cent. and more than
10 per cent., respectively, at constant exchange rates (with 2021 as the base
year).

 

Haleon is a new, world-leader in consumer healthcare with a clear strategy to
outperform and run a responsible business. For prospective investors, it will
offer an exceptional and focused portfolio of category-leading brands with an
attractive footprint and competitive capabilities; a highly attractive
financial profile of above market, medium-term annual organic revenue growth
of 4 to 6 per cent. combined with sustainable moderate, adjusted margin
expansion on a constant currency basis, with strong cash generation and
conversion.

 

The Demerger is conditional on, among other things, the approval by GSK
shareholders of the Demerger, the GSK Share Consolidation and the Related
Party Transactions at a General Meeting, the receipt of all necessary
mandatory governmental/regulatory approvals and the final approval of the
Demerger by the GSK Board.

 

The General Meeting will be held at the Sofitel London Heathrow, Terminal 5,
London Heathrow Airport, TW6 2GD on Wednesday 6 July 2022 at 2.30 p.m. (UK
time). Further details will be set out in the Circular.

 

Following completion of the Demerger and listing of Haleon, GSK intends to
carry out the GSK Share Consolidation. This is intended to provide consistency
in the GSK share price pre- and post-separation (subject to interim market
movements), in order to enable comparability between the Company's earnings
per share and share price with previous periods. GSK intends to announce its
second quarter 2022 results on 27 July 2022 in which the Consumer Healthcare
business will be treated as a discontinued operation.  Alongside this, Haleon
will provide a trading update ahead of publishing its full interim results
during September 2022.

 

As part of the Demerger, GSK proposes to enter into new arrangements with
Pfizer and Haleon and to amend certain existing arrangements with Pfizer.
Pfizer is a related party of GSK for the purposes of the Listing Rules by
virtue of its 32 per cent. interest in the Consumer Healthcare business, which
means that these new arrangements constitute related party transactions and
require GSK shareholder approval at the General Meeting. GSK shareholder
approval is also required in relation to the Demerger, which, due to its size,
qualifies as a "Class 1" transaction for the purposes of the Listing Rules,
and the GSK Share Consolidation. Further details on Haleon, the Demerger and
the Related Party Transactions are set out later in this release and in the
Circular.

 

A further announcement will be made once the Circular and the Prospectus have
been approved for publication by the FCA.

 

Description of GSK

GSK is a science-led global healthcare company. For further information please
visit www.gsk.com/about-us (https://www.gsk.com/en-gb/about-us/) .

 

Description of Haleon

Haleon will be a global leader in consumer healthcare with a focused strategy
to deliver sustainable above-market growth and attractive returns to
shareholders; a world-class portfolio of category-leading brands; an
attractive geographic footprint well placed for growth; competitive
capabilities including strong route-to-market capabilities across all
channels; and brand building and innovation capabilities alongside digital
connectivity, which offers a proposition that combines human understanding
with trusted science.

 

Haleon's product portfolio is split among five categories: Oral Health, Pain
Relief, VMS, Respiratory Health, Digestive Health and Other. Haleon's largest
category by revenue is Oral Health, which accounted for 28.5 per cent. of
Haleon's revenue in the year ended 31 December 2021. The Pain Relief and
Digestive Health and Other categories also significantly contribute to
revenue, respectively contributing 23.4 per cent. and 20.4 per cent. of
revenue in the year ended 31 December 2021. VMS and Respiratory Health
respectively accounted for 15.7 per cent. and 11.9 per cent. of revenue in the
year ended 31 December 2021.

 

In the year ended 31 December 2021 the profit before tax attributable to
Haleon was £1,636 million. As at 31 March 2022 the gross assets of Haleon
were £45,023 million. On an unaudited pro forma basis, net debt of Haleon as
at 31 March 2022 would have been £10,349 million.(( 2 ))

Haleon Designate Board

A new independent board has been appointed specifically to support the
delivery and growth strategy for Haleon, under the leadership of its Chair
Designate, Sir Dave Lewis.

 

 Name                           Position
 Sir Dave Lewis                 Non-Executive Chair**
 Brian McNamara                 Chief Executive Officer
 Tobias Hestler                 Chief Financial Officer
 Manvinder Singh (Vindi) Banga  Senior Independent Non-Executive Director*
 Marie-Anne Aymerich            Non-Executive Director*
 Tracy Clarke                   Non-Executive Director*
 Dame Vivienne Cox              Non-Executive Director*
 Asmita Dubey                   Non-Executive Director*
 Deirdre Mahlan                 Non-Executive Director*
 Bryan Supran                   Non-Executive Director (Pfizer Nominee)*
 John Young                     Non-Executive Director (Pfizer Nominee)*

 *Appointment to become effective from Admission.

 **Sir Dave Lewis was appointed as a director of the company on 23 May 2022.
His appointment as Non-Executive Chair takes effect on Admission.

 

Haleon Senior Management

In addition to the Designate Board, the current members of the senior
executive team with responsibility for day-to-day management of Haleon's
business are set out below.

 

 Name               Position
 Dana Bolden        Head of Corporate Affairs
 Keith Choy         Head of Asia Pacific
 Bart Derde         Head of Quality and Supply Chain
 Amy Landucci       Head of Digital and Technology
 Filippo Lanzi      Head of EMEA and LatAm
 Jooyong Lee        Head of Strategy and Office of the CEO
 Teri Lyng          Head of Transformation and Sustainability
 Mairéad Nayager    Chief Human Resources Officer
 Lisa Paley         Head of US and North America
 Franck Riot        Head of R&D
 Tamara Rogers      Chief Marketing Officer
 Bjarne P Tellmann  General Counsel

 

Description of the Demerger

 

Structure of the Demerger

 

The separation will be effected via a demerger of at least 80 per cent. of
GSK's interest in the Consumer Healthcare business to Haleon plc, a listing of
Haleon on the Main Market of the LSE, and the establishment of a level 2
sponsored American depositary receipt programme on the NYSE.

 

Prior to the Demerger, GlaxoSmithKline Consumer Healthcare Holdings (No. 2)
Limited ("JVCo"), the current holding company of the Consumer Healthcare
business, will pay dividends to GSK and Pfizer, which are expected to result
in GSK receiving cash proceeds of more than £7 billion at separation (the
"Pre-Demerger Dividends").  Qualifying GSK shareholders will be entitled to
receive one Haleon share for each GSK share held by them and will continue to
own their GSK shares unless they sell or transfer them in the ordinary course.

 

Following the Demerger, the total issued ordinary share capital of Haleon will
be held as follows:

·      at least 54.5 per cent. will be held in aggregate by GSK
shareholders;

·      up to 6 per cent. will be held by GSK;

·      32 per cent. will be held by Pfizer; and

·     certain Scottish limited partnerships (the "SLPs") set up to provide
a funding mechanism pursuant to which GSK will provide additional funding for
GSK's UK Pension Schemes, will in aggregate hold 7.5 per cent.

 

In addition to receiving cash from the Pre-Demerger Dividends, GSK intends to
monetise its holding in Haleon in a disciplined manner to further strengthen
the Company's balance sheet.  GSK will also have the ability to monetise the
7.5 per cent. holding of the SLPs, and to retain any proceeds in excess of
approximately £1.08 billion (being the amount required to fully fund the
technical provisions funding deficits of GSK UK Pension Schemes, as determined
at the last triennial valuation). In keeping with Pfizer's transformation into
a more focused, global leader in science-based innovative medicines and
vaccines, Pfizer intends to exit its 32 per cent. ownership interest in
Haleon in a disciplined manner, with the objective of maximising value for
Pfizer shareholders.

 

Conditions to completion

 

The Demerger is conditional on, among other things, the approval by GSK
shareholders of the Demerger, the GSK Share Consolidation and the Related
Party Transactions at a General Meeting, the receipt of all necessary
mandatory governmental/regulatory approvals and the final approval of the
Demerger by the GSK Board.

 

Description of the Related Party Transactions

 

By virtue of Pfizer being a related party of GSK under the Listing Rules as a
result of its 32 per cent. interest in the Consumer Healthcare business, the
entry into certain new arrangements (or amendments to certain existing
arrangements) between GSK, Haleon and Pfizer in connection with the Demerger
and separation constitute related party transactions for the purposes of
Chapter 11 of the Listing Rules.

 

In particular, while various arrangements between GSK and Pfizer in connection
with the formation of the Consumer Healthcare joint venture and separation
were approved by GSK shareholders at a general meeting of GSK on 8 May 2019
("Shareholder-Approved Arrangements"), material amendments to the
Shareholder-Approved Arrangements and certain new arrangements with Pfizer
outside the scope of these Shareholder-Approved Arrangements (and otherwise
not exempt under the Listing Rules) require Shareholder approval. These
related party transactions, which are aggregated in accordance with Chapter 11
of the Listing Rules, require the approval of GSK shareholders.

 

Specifically, the Related Party Transactions comprise:

 

Pfizer SAPA Amendment Agreement

 

GSK, Pfizer and Haleon have agreed to certain amendments to the stock and
asset purchase agreement dated 19 December 2018 and amended and restated on 31
July 2019 between Pfizer, GSK, GlaxoSmithKline Consumer Healthcare Holdings
Limited and JVCo (the "Pfizer SAPA"), including amendments:

·    to reflect the proposed separation of the Haleon Group to operate as a
business independent from the GSK Group and the Pfizer Group;

·      that are required as a result of overlap with certain other
agreements to effect the proposed Demerger and the proposed separation of the
Haleon Group;

·    to update the liability framework established by the Pfizer SAPA to
reflect the proposed separation of the Haleon Group.

 

Tax Covenant

 

Pfizer, GSK and Haleon have agreed to allocate tax risk associated with the
Demerger, and certain associated transactions and reorganisation steps through
indemnities from: (i) GSK and Pfizer to Haleon; and (ii) from Haleon to each
of GSK and Pfizer.

 

Orderly Marketing Agreement

 

GSK, Pfizer and each of the SLPs have agreed to regulate sales of interests in
Haleon shares (including ADSs) by each of them, including ensuring that when
one party proposes to sell Haleon shares the other parties have the
opportunity to participate in any such sale. The parties have undertaken not
to sell any Haleon shares without following the procedure set out in the
Orderly Marketing Agreement, which requires Pfizer to give notice to GSK
(where Pfizer and/or its associates are proposing to sell Haleon shares) and
GSK to give notice to Pfizer (where GSK, one or more of the SLPs and/or their
respective associates are proposing to sell Haleon Shares) of any such
proposed new sale of Haleon shares. The extent to which each party is entitled
to participate in any proposed sale of Haleon shares notified to it, should it
choose to do so, is determined in accordance with an allocation mechanism
included in the agreement.

 

Lock-up Deed

 

Pfizer, GSK and each of the SLPs have agreed to a lock-up, being the
prohibition of offers, sales, loans, pledges or  other disposals of Haleon
shares and ADSs in respect of Haleon shares by GSK, Pfizer or the SLPs during
the period commencing on completion of the exchange transactions to establish
the interests of each of GSK, Pfizer and the SLPs in Haleon and ending on the
day after the earlier of: (i) 10 November 2022; and (ii) the release by Haleon
of a quarterly trading update in respect of a quarterly period ending after 30
June 2022.

 

Pfizer Exchange Agreement

 

To establish its interest in Haleon, Pfizer has agreed to exchange its
ownership interest in PF Consumer Healthcare Holdings LLC (the Pfizer Group
subsidiary that holds direct ownership interests in JVCo) for: (i) Haleon
shares constituting in aggregate 32 per cent. of Haleon's ordinary share
capital at Admission; and (ii) non-voting preference shares in Haleon.

 

NEBA Amendment Agreement

 

Pfizer and GSK have agreed to amend the terms of the original net economic
benefit letter agreement between Pfizer, GSK and JVCo dated 31 July 2019.
These amendments include changes to the governance, operation and expected
transfer timings of certain businesses, assets, liabilities and employees that
were included in the original perimeter of the GSK/Pfizer joint venture as
contemplated in the Pfizer SAPA, but for certain regulatory and other local
market commercial reasons will not legally transfer from the GSK Group to the
Haleon Group until a date following the Demerger.

 

Each of the above are described in further detail in paragraph 7 of Part 7
(Additional Information) of the Circular.

 

Disclaimer

 

GSK makes no representation or warranty as to the appropriateness, accuracy,
completeness or reliability of the information in this announcement.

 

This announcement is for information purposes only and is not intended to and
does not constitute or form part of any offer or invitation to purchase,
otherwise acquire, subscribe for, sell, otherwise dispose of or issue, or any
solicitation of any offer to sell, otherwise dispose of, issue, purchase,
otherwise acquire or subscribe for, any security.

 

Prior to making any decision in relation to the Demerger, shareholders should
read the Circular and the Prospectus in their entirety, including the
information incorporated by reference. Shareholders must rely upon their own
examination, analysis and enquiries of GSK and the terms of the Circular and
Prospectus, including the merits and risks involved.

 

Information regarding forward-looking statements

 

This announcement contains statements that are, or may be deemed to be,
"forward-looking statements". Forward-looking statements give GSK's current
expectations or forecasts of future events, including strategic initiatives
and future financial condition and performance relating to Haleon and/or GSK.
An investor can identify these statements by the fact that they do not relate
strictly to historical or current facts. They use words such as 'anticipate',
'estimate', 'expect', 'intend', 'will', 'project', 'plan', 'believe',
'target', 'aim', 'ambition' and other words and terms of similar meaning in
connection with any discussion of future operating or financial performance.
In particular, these include statements relating to future actions, plans,
objectives, goals, event or intentions. Other than in accordance with its
legal or regulatory obligations (including under the Market Abuse Regulation,
the UK Listing Rules and the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority), GSK undertakes no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise. The reader should, however, consult any additional
disclosures that GSK may make in any documents which it publishes and/or files
with the SEC. All readers, wherever located, should take note of these
disclosures. Accordingly, no assurance can be given that any particular
expectation will be met and investors are cautioned not to place undue
reliance on the forward-looking statements.

 

Forward-looking statements are subject to assumptions, inherent risks and
uncertainties, many of which relate to factors that are beyond GSK's control
or precise estimate. GSK cautions investors that a number of important
factors, including those in this document, could cause actual results to
differ materially from those expressed or implied in any forward-looking
statement. Such factors include, but are not limited to, those discussed under
Item 3.D 'Risk Factors' in GSK's Annual Report on Form 20-F for 2021, GSK's Q1
Results for 2022 and any impacts of the COVID-19 pandemic. Any forward-looking
statements made by or on behalf of GSK speak only as of the date they are made
and are based upon the knowledge and information available to the directors on
the date of this announcement.

 

Assumptions

All outlooks, ambitions considerations in relation to GSK should be read
together with pages 5-7 of the Stock Exchange announcement relating to an
update to investors dated 23 June 2021 and the Guidance, assumptions and
cautionary statements of GSK's Q2 2021 earnings release.

In outlining the medium term outlooks and growth ambitions for Haleon, GSK has
made certain assumptions about the consumer healthcare sector, the different
geographic markets and product categories in which Haleon operates and the
delivery of revenues and financial benefits from its current product range,
pipeline and integration and restructuring programmes. These assumptions, as
well as the outlooks, ambitions or considerations (as applicable) for organic
annual sales growth, adjusted operating margin expansion, dividend payout
ratio, cash generation/conversion and deleveraging, assume, among other
things, no material interruptions to the supply of Haleon's products, no
material mergers, acquisitions or disposals, no material litigation or
investigation costs (save for those that are already recognised or for which
provisions have been made), no material changes in the regulatory framework
for developing new products and retaining marketing approvals, no material
changes in the healthcare environment, no unexpected significant changes in
Haleon's end markets, no unexpected significant changes in pricing as a result
of government, customer or competitor action, no unexpected significant
geopolitical developments, no material changes in foreign currency exchange
rates and no material changes in the impacts of the COVID-19 pandemic. These
outlooks, ambitions and considerations also assume the successful delivery of
the separation programme to deliver the demerger of Haleon and the realisation
of its anticipated benefits. The outlook and growth ambitions are given at
constant exchange rates.

 

 GSK enquiries:
 Media enquiries:             Tim Foley        +44 (0) 20 8047 5502  (London)
                              Kathleen Quinn   +1 202 603 5003       (Washington DC)

 Analyst/Investor enquiries:  Nick Stone       +44 (0) 7717 618834   (London)
                              James Dodwell    +44 (0) 20 8047 2406  (London)
                              Mick Readey      +44 (0) 7990 339653   (London)
                              Josh Williams    +44 (0) 7385 415719   (London)
                              Jeff McLaughlin  +1 215 751 7002       (Philadelphia)
                              Sonya Ghobrial   +44 (0) 7823 523562   (Consumer)
                              Emma White       +44 (0) 7823 523562   (Consumer)
                              Rakesh Patel     +44 (0) 7552 484646   (Consumer)

 

Registered in England & Wales:

No. 3888792

 

Registered Office:

980 Great West Road

Brentford, Middlesex

TW8 9GS

 

 

 1  It is expected that Haleon ADSs will commence "regular-way" trading on the
NYSE at market open on 22 July 2022. In addition, we expect that Haleon ADSs
will begin trading on a "when-issued" basis on the NYSE from market open on 18
July 2022 up to and including 21 July 2022.

 2  This pro forma financial information is unaudited. It has been prepared on
the basis of the unaudited interim financial information of Haleon as at 31
March 2022, the date to which the latest unaudited financial information in
relation to Haleon was prepared. This pro forma information is shown for
illustrative purposes only and because of its nature addresses a hypothetical
situation. It does not represent Haleon's actual financial position or
results. It may not, therefore, give a true picture of Haleon's financial
position or results nor is it indicative of the results that may, or may not,
be expected to be achieved in the future. Please refer to the Prospectus for
further details.

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