What's going on?

Hot on the heels of its $5 billion acquisition of biotech firm Tesaro and the sale of its nutrition business, there�s more big news from GlaxoSmithKline (GSK). The British pharmaceutical company announced a major partnership with American rival Pfizer on Wednesday.

What does this mean?

The new venture will merge both companies� consumer health businesses into a single entity � combining GSK�s Panadol and Nicorette brands with the likes of Pfizer�s Advil and ChapStick. With approximately $12 billion in annual revenue and a 7% market share, it�ll be the world�s largest producer of non-prescription medicines.


GSK, contributing the bigger brands, is set to own 68% of the newly created company, with Pfizer owning the rest. Annual cost synergies of about $630 million are expected within three years � after which the baby giant will likely be listed on the UK stock market.

Why should I care?

For markets: Investors getting the GSK(s) they want.

GSK�s shares have been underperforming for some time � and investors have put pressure on the company to split itself up in order to run more efficiently (and profitably). The company�s recently appointed CEO considered buying Pfizer�s consumer healthcare business outright earlier this year, but instead took full control of a previous joint venture. Wednesday�s news is GSK�s first step towards separating into two halves: one focused on consumer health and the other on prescription drugs.

The bigger picture: The healing dealing may have just begun…

The merger will allow GSK to double down on its Tesaro-boosted pharmaceutical activity. This expensive, research-intensive business relies on successfully developing (and getting approved) disease treatments � and it doesn�t always work out. But without the dependable revenues of a consumer healthcare wing, there�ll be less ready cash to cover any expensive failures. A couple of wrong moves, and the new GSK could once again find itself a potential takeover target (tweet this).