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Acquisitions and disposals
 12 Months Ended
Dec. 31, 2019
Text block [abstract]  
Acquisitions and disposals
40. Acquisitions and disposals
 
 
Details of the acquisition and disposal of significant subsidiaries and associates, joint ventures and other businesses are given below:
2019
Business acquisitions
Pfizer consumer healthcare business
The acquisition of Pfizer’s consumer healthcare business completed on 31 July 2019.
GSK and Pfizer have contributed their respective consumer healthcare businesses into a new Consumer Healthcare Joint Venture in a
non-cash
transaction, whereby GSK has acquired Pfizer’s consumer healthcare business in return for shares in the Joint Venture. GSK has an equity interest of 68% and majority control of the Joint Venture and Pfizer has an equity interest of 32%. As the Group has control over the Consumer Healthcare Joint Venture it is consolidated within the Group’s financial statements.
 
In a number of territories, legal completion of the acquisition has not occurred because of regulatory constraints. However, the Consumer Healthcare Joint Venture obtained control of the majority of these businesses in these territories from 31 July 2019 and has consolidated the net assets of those businesses from that date, but in all cases is entitled to the benefits of the trading of businesses in the delayed territories.
The
non-controlling
interest in the Consumer Healthcare Joint Venture, calculated applying the
proportionate goodwill method, represents Pfizer’s share of the net assets of the Joint Venture, excluding goodwill.
Goodwill of £3.9
billion
,
which is not expected to be deductible for tax purposes, has been recognised. The goodwill represents the potential for further synergies arising from combining the acquired businesses with GSK’s existing business together with the value of the workforce acquired. Total transaction costs recognised in 2018 and 2019 for the acquisition amounted to £77 million.
Since acquisition on 31 July 2019,
sales
of £1.2
b
illion arising from the Pfizer consumer healthcare business
have
been included in Group turnover. If the business had been acquired at the beginning of the year, it is estimated that Group turnover in 2019 would have been approximately £1.5
billion
higher. The business has been integrated into the Group’s existing activities and it is not practicable to identify the impact on the Group profit in the period.
Tesaro Inc.
On
22 January 2019, GSK acquired 100% of Tesaro Inc., an oncology focused biopharmaceutical company, for cash consideration of $5.0 billion (£3.9 billion)
,
 
in order to strengthen the Group’s pharmaceutical pipeline. Transaction costs amounted to £31 million.
Goodwill of £1.2 billion, none of which is expected to be
tax-deductible,
has been recognised.
The goodwill represents the potential for further synergies arising from combining the acquired businesses with GSK’s existing business together with the value of the workforce acquired. Since acquisition on 22 January 2019, sales of
£0.2
billion arising from the Tesaro business have been included in Group turnover. The business has been integrated into the Group’s existing activities and it is not practicable to identify the impact on the Group profit in the period.
The fair value of the assets acquired in business combinations, including goodwill, are set out in the table below.
Amounts related to the Pfizer consumer healthcare business acquisition are provisional and subject to change.
 
   Pfizer
c
onsumer
h
ealthcare
business
£m		   Tesaro
£m		   Other
£m		 
Net assets acquired:
               
Intangible assets
   12,357    3,092    — 
Property, plant and equipment
   354    6    — 
Right of use assets
   39    40    —   
Inventory
   986    162    — 
Trade and other receivables
   546    115    35 
Other assets including cash and cash equivalents
   302    254    16 
Trade and other payables
   (779)    (282)    (39) 
Net d
eferred tax liabilities
   (2,591)    (252)    — 
Other liabilities
   (99)    (5)    — 
Term loan
 
 
 
—
 
 
 
(445
)
 
 
—
 
Non-controlling
interest
   (3,577)    —    — 
Goodwill
   3,854    1,169    — 
Total
   11,392    3,854    
12
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consideration settled by shares in GSK
Consumer Healthcare Joint Venture
   11,392    —    — 
Cash consideration paid
   —    3,854    6 
Fair value of investment in joint venture converted into subsidiary
 
 
—
 
 
 
—
 
 
 
6
 
Total consideration
   11,392    3,854    12 
   
 
 
   
 
 
   
 
 
 
The 
non-controlling
 interest of £3,577
 
million represents Pfizer’s share of the fair value of the Pfizer consumer healthcare business, excluding goodwill. The total 
non-controlling
 interest
 initially
recognised in the Consolidated statement of changes in equity of £6,887 million also includes Pfizer’s share of the book value of GSK Consumer Healthcare.
Business disposals
GSK made a number of business disposals for net cash consideration received of
£104
million in the year. The
profit
on
the
disposal of the businesses in the year of £201
million was calculated as follows:
 
 
 
£m
 
  
Total
£m
 
Cash consideration receivable net of subsidy payable
 
 
 
 
  
 
106
 
Net assets sold:
 
 
 
 
  
 
 
 
Goodwill
 
 
(4
)
 
  
 
  
Intangible assets
 
 
(1
)
  
 
  
Property, plant and equipment
 
 
(44
)
  
 
  
Inventory
 
 
(7
)
  
 
  
Cash and cash equivalents
 
 
(12
)
  
 
  
Other net assets
 
 
(4
)
  
 
  
 
 
 
 
 
  
 
(72
) 
Transaction costs
 
 
 
 
  
 
(27
) 
Reclassification of exchange from other comprehensive income
 
 
 
 
  
 
75
 
Non-controlling interest divested
 
 
 
 
 
 
16
 
 
 
 
 
 
 
 
98
 
Transaction signed but not yet completed—gain on embedded derivative
 
 
 
 
  
 
143
 
Transaction signed but not yet completed—transaction costs
 
 
 
 
  
 
(40
) 
Total profit on disposal
 
 
 
 
  
 
201
 
Transaction signed but not yet completed
In December 2018, GSK agreed to divest Horlicks and other Consumer Healthcare nutrition brands to Unilever plc and to form a merger of
Glaxosmithkline Consumer
Healthcare Limited with Hindustan Unilever Limited for a total consideration valued at approximately £3.1 billion.
Glaxosmithkline
Consumer Healthcare Limited is a public company listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), in which GSK holds a 72.5% stake.
Following
the merger of
Glaxosmithkline
Consumer Healthcare Limited with Hindustan Unilever Limited, a public company listed on the NSE and BSE, GSK will own 133.8 
million Hindustan Unilever Limited shares.
The Group has entered into forward foreign exchange contracts in relation to the transaction. Contracts with a value of £1.7 billion have been designated as a cash
 
flow hedge of part of the foreign exposure arising on the transaction. Further contracts with a value of £0.6 billion have been designated as net investment hedges against INR and EUR assets. In addition, the exposure to share price movements in the forward purchase of shares in Hindustan Unilever Limited has been recognised as an embedded derivative. The embedded derivative was in an asset position and had a fair value
of £240 million at 31 December 2019
 (2018 – £100 million).
Associates and joint ventures
During the year, GSK made investments of £27 million into associates and joint ventures
 of which £11 million was paid in
cash
.
Cash flows
 
   Business
acquisitions
£m		   Business
disposals
£m		   Associates
and joint
venture
investments
£m		 
Cash consideration (paid)/received
   (3,860)    161    (11) 
Net deferred consideration received
   —    29    
—
 
Tra
ns
action costs
 
 
 
(95
) 
 
 
(73
)
 
 
—
 
Cash and cash equivalents acquired/divested
   384    (13)    
—
 
   
 
 
   
 
 
   
 
 
 
Cash (outflow)/inflow
   (3,571)    104    (11) 
2018
Business acquisitions
There were no business acquisitions during 2018.
Business disposals
GSK made a number of small business disposals during the year for a net cash consideration of £2 million.
Cash flows
 
   Business
disposals
£m		   Associates
and joint
venture
investments
£m		   Associates
and joint
venture
disposals
£m		 
Cash consideration
   2    (10)    3 
Net deferred consideration received
   24    —      —   
   
 
 
   
 
 
   
 
 
 
Cash inflow/(outflow)
   26    (10)    3 
   
 
 
   
 
 
   
 
 
 
2017
Business acquisitions
There were no business acquisitions during 2017.
Business disposals
GSK made a number of small business disposals during the year for a net cash con
s
ideration of £342 million, including contingent consideration receivable of £86 million. The profit on disposal was determined as follows:
 
 
 
 
£m
  Total
£m		 
Consideration including currency forwards and purchase adjustments
 
 
 
 
   342 
 
 
 
 
 
  
 
 
 
Net assets sold:
 
 
 
 
     
Goodwill
 
 
 
(16
)
  		   
Intangible assets
 
 
 
(21
)
  		   
Property, plant and equipment
 
 
 
(18
)
  		   
Inventory
 
 
 
(11
)
  		   
Cash and cash equivalents
 
 
 
(6
)
  		   
Other net assets
 
 
 
(5
)
  		   
 
 
 
 
 
  
 
 
 
 
 
 
 
 
   (77) 
Transaction costs
 
 
 
 
   (8) 
Reclassification of exchange from other comprehensive income
 
 
 
 
   (100) 
 
 
 
 
 
  
 
 
 
Profit on disposal
 
 
 
 
   157 
 
 
 
 
 
  
 
 
 
Associates and joint ventures
During the year, GSK made cash investments of £15 million into associates and joint ventures.
In addition, GSK sold its holdings in two associates for £198 million in cash.
 
   Total
£m		 
Cash consideration
   198 
Net book value of shares
   (92) 
Reclassification of exchange from other comprehensive income
   (7) 
Transaction costs
   (5) 
   
 
 
 
Profit on disposal
   94 
   
 
 
 
Cash flows
 
   Business
disposals
£m		   Associates
and joint
venture
investments
£m		   Associates
and joint
venture
disposals
£m		 
Cash consideration
   256    (15)    198 
Net deferred consideration received
   39    —      —   
Cash and cash equivalents divested
   (6)    —      —   
Transaction costs paid
   (7)    —      (2) 
   
 
 
   
 
 
   
 
 
 
Cash inflow/(outflow)
   282    (15)    196