The spin-off of GSK’s consumer health unit, the biggest London listing in more than a decade, made a weak debut on Monday as the group, now called Haleon, launched in choppy markets overshadowed by inflation concerns.
Shares in Haleon fell 6.6% on Monday to 308.4p after opening at 330p, giving the owner of brands including Sensodyne toothpaste and painkillers Panadol a market value of around £30bn.
It was the biggest London listing since Glencore’s £37bn initial public offering in 2011 and makes Haleon the world’s largest stand-alone consumer health business, as well as one of the FTSE’s 20 biggest companies .
But analysts said GSK would face questions over its rejection of Unilever’s £50bn offer – a figure which also represents £10bn of debt – for the division late last year.
They also noted concern about the impact of inflation on businesses, as rising prices weigh on retail stocks and consumers. Martin Debou, an analyst at Jefferies, said Haleon has yet to demonstrate it can gain market share to boost growth rates above pre-pandemic levels.
The division, headed by former Novartis chief executive Brian McNamara and chaired by former Tesco chief executive Dave Lewis, forecasts annual comparable sales growth of 4% to 6%, although most analysts expect growth at the lower end of that range.
Chris Beckett, head of equity research at wealth manager Quilter Cheviot, said market pricing was “certainly at the lower end of expectations” but added: “It’s an attractive industry and business to be exposed to by referring to its defensive characteristics at a time when volatility upsets markets.’
McNamara claims the group’s products attract strong brand loyalty.
“This is an amazing business, 100 percent focused on consumer health, which is more relevant than ever after the pandemic,” he added. “We have less exposure to commodity-related costs [than other consumer groups] and environmental challenges. Our carbon footprint is lower.”
The split is intended to leave GSK, which has faced pressure from activist investors, free to focus on prescription drugs and vaccines. Shareholders received one Haleon share for each GSK share they owned.
Haleon, a joint venture with Pfizer that includes assets purchased from Novartis, is the only listed pure consumer healthcare group available to investors.
It competes with Strepsils maker Reckitt Benckiser, where consumer health will account for a third of net revenue in 2021, and Johnson & Johnson’s consumer health unit, which its parent plans to spin off next year.
GSK shares were flat on Monday, but fell 19.2% from Friday’s close to hit £13.89 on Monday, reflecting the drop in value since the spin-off. The drugs and vaccines group will consolidate its shares after trading on Monday to bring the price back in line with its pre-spin-off level.
The split was a test for GSK’s Emma Walmsley, chief executive since 2017, who said it would address “persistent underperformance” by leaving the pharmaceutical company with a stronger balance sheet while leaving Haleon free to invest in marketing and new products.
Beckett said the difference between Haleon’s market value and Unilever’s offer would prompt further questions from investors: “Haleon’s management will have to justify why they rejected the approach.”
GSK and Pfizer together retain about $15 billion in stakes in Haleon, which they intend to sell after the lock-up ends in November.
Debu said Haleon executives have been busy integrating the consumer health divisions of Pfizer and Novartis. “Now that this integration is complete, redirecting that energy can reap many rewards,” he said.
Haleon aims to reduce its debt over time, but McNamara said the group had the capacity to make sudden acquisitions annually over the next two years and would look for fast-growing groups worth between £50m and £100m.
The company said it expects to benefit from long-term trends such as the aging of the world’s population and pressure on public health systems, which lead consumers to seek to manage health problems themselves.
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