British drugmaker GSK spun off its consumer health business on Monday in the biggest listing in Europe for more than a decade, but the unit's market value of £30.5 billion fell well short of the price rival Unilever offered to pay earlier this year.
The new company, Haleon, emerges as the world's biggest standalone consumer health business, home to brands including Sensodyne toothpaste and Advil painkillers.
Shares in Haleon started trading at 330 pence, giving the business a market valuation of around £30.5 billion and ranking it in the top 20 companies by market cap in London's FTSE index.
Haleon's debut price was largely in line with market expectations, according to two bankers involved in the deal. However, its current valuation is lower than expected.
Even accounting for the roughly £10 billion in debt, it is below the enterprise value of £50 billion Unilever was prepared to pay for the business at the beginning of the year. GSK had rebuffed the offer on the basis it was too low.
"Investors might be wondering why GSK didn't accept the much higher bid from Unilever," AJ Bell analyst Danni Hewson wrote in a note.
GSK shares rose in early trading, but started to slip later. At 1105 GMT, the stock was down 0.7 per cent.
Meanwhile, Haleon's stock was trading down nearly 3 per cent from the opening price, but it's difficult to draw conclusions without several days of trading, investors said.
"Generally, demerger prices take some time to settle as there is no 'normal' liquidity in them yet," said Tineke Frikee, a portfolio manager at Waverton Asset Management with shares in GSK and Unilever.
The last major European company to list after being spun off was French drug ingredients business EUROAPI, which debuted in Paris in May after being spun off by Sanofi.
Those shares stayed above their reference price on their first day of trading on May 6, rising as much as 12.6 per cent on the day.
GSK Overhaul
Having made about £9.6 billion last year, Haleon is forecast to bring in £10.7 billion in 2022, according to Barclays analysts.
GSK's June forecast for Haleon's annual organic revenue growth of 4 to 6 per cent over the next three to five years exceeded some analysts' expectations.
It was also met with a degree of scepticism among some investors given industry average of 3 to 5 per cent, according to Barclays.
The Haleon separation is the result of a long-scripted overhaul of GSK, which will now focus solely on vaccines and prescription drugs.
The company has been buoyed by recent clinical trial successes, including its potential blockbuster RSV vaccine, and M&A activity.
A general view of the exterior of the GlaxoSmithKline offices on October 07, 2021 in the Brentford area of London, England. (Photo by Leon Neal/Getty Images)
However, the company has underperformed relative to its peers in recent years, triggered by a falling share of R&D spend, some clinical failures, and missing out on the lucrative market for the first set of COVID-19 vaccines.
As a result, activist investors pushed for an array of changes last year. Now, the company has momentum on its side - its shares have risen 5 per cent this year despite sharp declines in global stock markets.
But there remain questions over its long-term prospects, with the loss of exclusivity of its key HIV drug, dolutegravir, expected by 2028.
However, GSK has a long runway to execute and find new drugs, including potentially using part of the £7 billion generated via the Haleon spin-off to fund more deals.
Share Consolidation
With the split complete, all GSK shareholders receive one Haleon share for each GSK share they own.
Pfizer will retain its 32 per cent stake in Haleon, which it intends on selling off over time. GSK will hold up to 13.5 per cent in Haleon, while the remaining 54.5 per cent will be owned by GSK shareholders.
After close of trading on Monday, GSK will consolidate its share price to ensure the company's earnings per share and share price can be compared with previous periods, it has said.
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