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GSK share consolidation: How many GlaxoSmithKline stocks will investors lose post Haleon demerger?

By Jenny McCall

14:20, 20 July 2022

A image of the one of the Glaxosmithkline office buildings.
GSK announced it will embark on share consolidation after it spins-off its consumer business - Photo: Shutterstock

UK biotech firm, GlaxoSmithKline (GSK) has officially demerged from its consumer healthcare business, which is now part of a new company called  Haleon. The spin-off took place on Monday 18 July, when Haleon, which will trade under the stock ticker 'HLN,' made its debut onto the London Stock Exchange (LSE).

99.8% of GSK shareholders voted for the demerger on Wednesday 6 July, resulting in HLN becoming the new home of brands such as Sensodyne  toothpaste and Advil painkillers.

It was recently announced that Haleon has selected Citigroup (C) and UBS Group (UBSG) as its brokers. UBS predicted that 2022 could be a stand out 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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GlaxoSmithKline (GSK) share price chart

Market scepticism 

In January, GSK rejected a £50bn ($59BN) bid by Unilever (ULVR) for its consumer healthcare business. It was reported in the Financial Times that GSK CEO, Emma Walmsley, stated that the vote by shareholders to carry-out the demerger has only helped to vindicate GSK’s decision to reject Unilever’s offer. 

However, when Haleon shares started trading on Monday morning, they traded at 330p this gave the business a market valuation of £30.5bn ($36.4bn) according to Reuters.

“With a market value of approximately £30bn, investors might be wondering why GSK didn’t accept the much higher bid from Unilever.” said Danni Hewson, financial analyst at AJ Bell.

In a report by Proactive, Barclays analysts Iain Simpson said after speaking with investors there is a level of "scepticism." 

“However, from our conversations with investors, many have expressed a desire to see Haleon de-lever its balance sheet and build a track record as a stand-alone company. This has potential to drive a medium-term re-rating, in our view," Simpson said. 

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, the total issued ordinary share capital of Haleon will mean that GSK shareholders will jointly own 54.5%, Pfizer will continue to hold 32%, GSK will hold 6% and 7.5% will be held by Scottish limited partnerships, which provide funding to GSK pensions.

Both Pfizer and GSK have said they plan to selldown the stake they have in Haleon but they can only do this once HLN has reported its first-quarter earnings in November and the lock-up period has ended. 

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What does demerger mean for shareholders?

As the demerger has now taken place, what will this mean for shareholders who have a stake in GSK?

Investors will now receive one share in Haleon for every existing GSK share that they own, this will leave investors owning 54.5% of the new business. 

Now that Haleon is listed on the LSE, GSK is trading without the value of the consumer healthcare business included in the shares.

“After the close of day 1 trading, GSK consolidates its existing shares, returning the share price to around the same as before demerger. This will ensure comparability of the company’s earnings per share and share price with previous periods,” GSK statement said.

On June 1, GSK announced it will embark on share consolidation and certain new arrangements  “to give effect to the Demerger.”

Pfizer (PFE) share price 

 

What is share consolidation?

Share consolidation is a technical change, which essentially reduces all shares held by shareholders and when all shareholders are affected nobody loses out. The number of shares will be less, but the percentage ownership and value of each shareholders investment will remain the same.


What is a reverse stock split?

A reverse stock split takes place when publicly traded companies divide the number of outstanding shares by a certain amount. This will decrease the number of outstanding shares but increase the price per share of those outstanding shares.

Unilever (ULVR) share price chart

Will GSK stock go up after share consolidation?

In a statement by GSK, it said that once GSK starts to trade without the value of the consumer healthcare business included, its share price is likely to fall. However, after the close of day one of trading without its consumer healthcare division, GSK will consolidate its existing shares, which will cause its share price to return to the same price as before the demerger, ensuring comparability of the company’s earnings per share and share price with previous periods.

Markets in this article

GSKl
GSK
15.245 USD
-0.115 -0.750%
ULVR
Unilever - GBP
45.350 USD
-0.21 -0.470%
PFE
Pfizer Inc (Extended Hours)
30.03 USD
0.18 +0.610%
C
Citigroup
65.24 USD
0.32 +0.490%
UBSG
UBS
27.16 USD
-0.3 -1.100%

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