GSK’s Haleon spin-off stock overhang: When will Pfizer dump its HLN holding?
By Jenny McCall
Updated
Its official. GlaxoSmithKline (GSK) has demerged from its consumer healthcare division and a new company, Haleon (HLN) will now be the home of leading brands such as Sensodyne toothpaste and Advil painkillers. Haleon was listed onto the London Stock Exchange (LSE) on Monday, and traded at 330p, giving the business a market valuation of £30.5bn ($36.4bn) according to Reuters.
Citi (C), who are the official brokers for Haleon (HLN) issued the consumer healthcare business with a 'buy' rating and 360p price target on Thursday.
“We see the company as the best vehicle to play the secular attractions of Consumer Health, facilitated by Haleon’s scale and its exposure to staples segments where it can more easily outperform,” Citi analysts wrote in a note.
“Coupled with a strategic optionality offering a floor to valuation, we believe the stock offers the best of both worlds: Consumer Health ‘defendability’ and staples ability to outgrow,” Citi analysts continued.
GlaxoSmithKline (GSK) share price chart
Shareholders unanimously voted for the demerger of GSK from its consumer healthcare business, will also signify the end of Pfizer's (PFE) partnership with GSK. So, when will Pfizer dump its Haleon holding?
The consumer health business was a joint venture between GSK, which prior to the demerger owned 68% and Pfizer (PFE), which still has 32%.
Now the demerger has taken place, American biotech and pharmaceutical corporation, Pfizer plans to sell its Haleon (HLN) stocks in November.
Now that the demerger has taken place, and Haleon is listed as a separate business on the London Stock Exchange (LSE) under stock ticker ‘HLN’, the total issued ordinary share capital of Haleon will leave GSK shareholders jointly owning 54.5%, Pfizer (PFE) will continue to hold 32%, GSK will hold 6% and 7.5% will be held by Scottish limited partnerships (SLPs), which provide funding to GSK pensions.
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Pfizer (PFE) to reduce stake
A lock-up period has been agreed by Pfizer (PFE), GSK and each of the SLPs. This means that sales of shares or any offers or other methods of disposal of Haleon shares and American depositary shares (ADSs), are prohibited.
The lock-up period is scheduled to end on 10 November, which is the date forecasted for Haleon to produce its first quarterly trading update for the period ending after 30 June 2022.
Following Haleon’s initial public offering (IPO) and the ending of the lock-up period, Pfizer (PFE) is then expected to reduce its stake in Haleon – which should take place from November.
“Pfizer owns 32%, but also intends to sell this stake. Neither GSK nor Pfizer will be able to start selling their holdings until November,” Susannah Streeter, senior investment and markets analyst at Hargraves and Lansdown wrote in a note.
“This will be the largest London Stock Market listing in a decade, with the new company becoming a big beast with a new skin in the consumer goods world,” Streeter added.
Pfizer (PFE) share price
Vindication
The decision to create new company, Haleon (HLN), came after GSK rejected a £50bn ($59bn) bid from Unilever (ULVR) back in January. GSK CEO Emma Walmsley said in a report by the Financial Times, that the vote by GSK shareholders to go through with the demerger only helped vindicate the group's decision to reject Unilever's bid.
However, Haleon’s debut on to the LSE will be far from easy. An article in This is Money, has shown that analysts at Barclays have calculated that once GSK spins-off its consumer healthcare business into Haleon, the new company will be lumbered with £10bn worth of debt on its balance sheet.
Unilever (ULVR) share price chart
Haleon debt
“GSK is parcelling off a considerable quantity of its sizeable debt pile into Haleon, expected to be around £10 billion. The consumer business will start life with a net debt to cash profits (EBITDA) ratio of up to 4.0, compared to the 2.0 times planned for New GSK,” Streeter said.
Haleon (HLN), announced that alongside Citi Bank (C), it will also use UBS (UBSG) as its brokers. UBS has already forecast that 2022 could be a standout year for Haleon and wrote in a note: “recovery from historically weak cough and cold seasons during the Covid pandemic becomes visible.”
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