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GSK demerger: can 1+1-½ = 3?

As activists add to the pressure on the GlaxoSmithKline board ahead of a proposed demerger, Robin Hardy asks if it will create value for shareholders
GSK demerger: can 1+1-½ = 3?

How can 1+1-½ = 3? This is what shareholders in pharma giant GlaxoSmithKline (GSK) are being asked to accept as the business is radically reshaped. GSK is to split itself in two by demerging its consumer products division. A demerger can create value for shareholders (the 1+1 = 3 part) but GSK is asking investors to trust that this plays out while also having to accept a much lower dividend (the ‘-½’ part). Is this too much to ask or do shareholders stand to gain enough to compensate?

What is a demerger? 

Importantly it is not a sell off or dissolution because after the demerger investors still own the same assets and income streams but hold some through company A (‘parent’) and the rest through newly created shares in company B (‘spin-off’). 

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