Lacklustre stock market debut for GSK spinoff

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21st July 2022

Bite-sized business news from the UK and beyond

Good morning And then there were two. Yesterday Liz Truss and Rishi Sunak emerged as the final candidates in the race to become the next prime minister after Penny Mordaunt was eliminated. The decision now lies with 160,000 Conservative party members who will vote between early August and 2 September, with the winner announced on 5 September.

On the same day outgoing PM Boris Johnson used his last moment at the despatch box in the House of Commons to suggest he could be back. Hasta la vista, baby was his typically Johnsonian parting shot.

Today's stories

Lacklustre stock market debut for GSK spinoff
EU energy crisis worsens

PHARMA
Lacklustre stock market debut for GSK spinoff

What happened?
This week pharma giant GSK spun off its consumer healthcare division, which makes brands like Aquafresh and Panadol, into a shiny new public company called Haleon. The debut valued the business at £30bn and was the biggest listing on the London Stock Exchange in a decade.

But so far, its shares have fallen almost 10% and are trading well below the £50bn price tag Unilever was willing to pay for the firm back in January.

How did we get here
GSK is one of the world’s biggest drugs companies making a wide range of prescription medicines, vaccines and consumer healthcare products.

Last year it announced that it would separate its consumer healthcare division, from its vaccines and medicine division so it can throw more weight behind getting better results in research and development.

In January it revealed that it had turned down Marmite-maker Unilever’s offer for the consumer arm not once but three times, saying that the £50bn bid was too low.

What’s behind the lukewarm reception
The timing of the listing is less than ideal. The stock market in 2022 has been incredibly volatile and marked by investors spooked over rising inflation, interest rates hikes and the prospect of an economic downturn. Haleon could well be caught up in the downbeat mood.

But there are also some company specific factors. Manufacturing consumer staples like toothpaste is a low margin business which means the soaring cost of raw materials could eat into profits.

What next
Given its massive R&D expenditures into new drug development, GSK’s now a higher-risk company. That could mean it has the potential for greater growth, albeit from a less diversified portfolio.

Haleon, on the other hand, is probably not going to be reinventing toothpaste anytime soon. Though that might make it a less volatile business.

Other stories to keep you in the loop

UK inflation hits fresh 40-year high of 9.4% and ‘could hit 12% in October’
House prices £32,000 higher than a year ago
Royal Mail ponders break up as it loses £1m a day
Strike by fuel workers at Heathrow suspended ahead of summer holiday rush
Tesla reports second quarter revenue slump after a struggle to meet demands

ENERGY
EU energy crisis worsens

What happened?
This week, Russia’s Gazprom (the biggest natural-gas company by sales) halted exports to three major European customers citing 'force majeure' — a stoppage for extraordinary circumstances.

It's the latest move in an economic tit-for-tat between the West and Russia over its invasion of Ukraine.

Russia supplies nearly half of the EU’s natural gas
Over the past month, Gazprom’s cut its export capacity to 40%. The Nord Stream pipeline (the main connection between Germany and Russia) closed last week for an annual maintenance check.

But Europeans worry that the force majeure signals Russia won't reopen its taps by today’s deadline. And Europe’s gas prices are already up 8 times from a year ago.

Europe’s crisis could be a global disaster
This year, Europe has surpassed Asia as the top importer of US oil for the first time since 2016 (because it’s getting less gas from Russia). But US production isn’t growing fast enough to meet the needs of both continents and its own.

Eventually, the energy crisis could cost European taxpayers billions through higher energy bills and higher taxes. Globally, a tighter gas market could trigger more inflation, hurt economic output and fuel a recession.

Stat of the day

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shiny new public company Lacklustre stock market debut London Stock Exchange EU energy crisis next prime minister same day outgoing PM Boris Johnson Johnsonian parting shot consumer healthcare division consumer healthcare products biggest drugs companies Bitesized business news pharma giant GSK

Lacklustre stock market debut for GSK spinoff

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