TheMotorcycleBoy wrote:Gengulphus wrote:TheMotorcycleBoy wrote:Apologies, perhaps I've misunderstood this sentence:
demerger in mid-2022 of at least 80% of GSK's holding to shareholders
that looks like their way of saying 80% of the total value of GSK equity goes into the new firm. ...
Yes, you've misunderstood it. If it had said "GSK's holdings" (plural), it might have meant that it was distributing 80% of everything GSK owns to shareholders (though as others have pointed out, it's highly unlikely that it would do that - so unlikely that a typo would be a more believable explanation, despite that fact that companies generally take a lot of care to say exactly what they mean in RNSes...). But it actually says "GSK's holding" (singular), so it means 80% of one particular thing GSK owns - and in the context, that one particular thing has to be Consumer Healthcare.
I still don't quite understand. Who will own the remaining 20%? Presumably not minority interests, that would seem too large a figure for that.
If you sell or otherwise dispose of 80% of one of your holdings, who owns the remaining 20%? The obvious answer is that you do - nothing's changed the ownership of that 20%, and so it remains owned by its previous owner, namely you. The same principle applies to GlaxoSmithKline's ownership of its Consumer Healthcare subsidiary.
TheMotorcycleBoy wrote:I appreciate that Dod previously suggested that Glaxo will hold the remaining 20% of the equity. I guess my point was/is that
I'd always assumed that all a firm's equity was owned by external owners and institutions. What you people seem to have eluded to contradicts this previously held view of mine, you suggest that the firm itself (Glaxo in this case) has rights of ownership. My earlier assumption was that, excepting that company staff often hold stock, and hence are owners in their own right, the company (i.e. its board, BUs and departments) do not have implicit ownership rights, but only have a management function.
A ha. My last guess. The remaining 20% (or whatever) will be owned by that "Parent Company" thing. This was something which IIRC you and I touched on briefly when I first joined TLF, in discussions relating to company consolidation. I believe, one or two earlier posters may have eluded to this, but didn't mention the word
Parent so I remained unpersuaded by those comments.
If the 80% goes to the external holders, and the 20% to the Parent Company, then that makes more sense. I'm still curious as to who exactly owns the "parent"
Yes, that guess is basically correct, but to fill in the details:
The parent company is the company named GlaxoSmithKline plc (registered at Companies House as
company 03888792), and it is owned by the shareholders of that company, including many of us. And that parent company is all that we shareholders own
directly, but the parent company owns shares in other companies, and some of those companies in turn own shares in yet other companies, and so on, so we
indirectly own shares in all of those other companies. GlaxoSmithKline's consolidated accounts are an attempt (*) to tell GlaxoSmithKline's shareholders how everything we own directly and indirectly as a result of owning GlaxoSmithKline pls shares is doing collectively, its parent-company accounts tell us how what we own directly (i.e. GlaxoSmithKline plc itself) is doing on its own.
One of GlaxoSmithKline plc's 100%-owned subsidiaries is a company called GlaxoSmithKline Consumer Healthcare Holdings Limited (registered at Companies House as
company 08998608) - to confirm that its shares are 100% owned by GlaxoSmithKline plc (or at least was as of October last year), click on the link's "Filing history" tab and then on the most recent confirmation statement's "View PDF" link. It's a plausible candidate for the company 80%+ of whose shares GlaxoSmithKline is intending to distribute to its shareholders next year, though that's a guess on my part based on its name rather than anything I know for certain. (Don't regard its small number of shares, the fact that it's not a plc, or its unlikely name for a publicly-quoted company as problems with that guess - they are all matters that a 100% owner can readily change.)
If GlaxoSmithKline plc were to distribute say 85% of its shares in that company to GlaxoSmithKline plc's shareholders and retain the remaining 15% of those shares for itself, no issue of a company owning its own shares would be involved. A company owning its own shares can happen, and does whenever a company buys back its own shares and puts them into "treasury" rather than cancelling them. But shares in treasury are essentially pretty insubstantial 'ghosts' of shares - they can't be voted, they're not entitled to dividends and other distributions, they're ignored in EPS calculations, etc. The basic reason for them being held by the company is just that if the company wishes to later issue shares (for instance for an employee share scheme), various bits of admin to do with releasing them from treasury are simpler than for issuing new shares to replace shares that have previously been cancelled.
There would also not be an immediate "minority interest" issue resulting from GlaxoSmithKline's continuing 15% stake in the Consumer Healthcare company. The reason for that is that "minority interests" arise when a parent company consolidates its subsidiaries' consolidated accounts into its own accounts, to account for any of those subsidiaries it doesn't 100% own (see (*) below). But after the distribution of Consumer Healthcare company's shares to GlaxoSmithKline's shareholders, no other company owns more than 50% of the Consumer Healthcare company's shares - i.e. it is not a subsidiary of
any other company, and so it cannot cause "minority interests" to arise for any other company. It will have subsidiaries of its own, brought with it when it was removed from GlaxoSmithKline's group of companies by the share distribution, but those subsidiaries won't include GlaxoSmithKline plc and so while it may have "minority interest" issues of its own, they won't be caused by GlaxoSmithKline's 15% stake.
There
might ultimately be "minority interest" issues resulting from GlaxoSmithKline's continuing 15% stake in the Consumer Healthcare company, but only as a consequence of future developments. For instance, if ThirdCompany plc were subsequently to take over the Consumer Healthcare company, without actually managing to acquire GlaxoSmithKline's stake (this is a possible outcome of a 'traditional' takeover offer, though not one done by a scheme of arrangement, as most seem to be these days), then GlaxoSmithKline's stake would cause a "minority interest" in ThirdCompany plc's consolidated accounts.
(*) I say that they're an attempt because the benefit from indirect ownership of another company varies in a somewhat complex way according to the percentage owned. E.g. if GlaxoSmithKline owns 85% of another company's shares and another shareholder of that other company owns the remaining 15%, GlaxoSmithKline plc completely controls that other company (**): it can appoint and fire directors of that other company as it wishes, and by using that ability if necessary, force that other company to enter or leave business areas, pay or not pay dividends, wind itself up, etc. The other shareholder has no similar control. If instead GlaxoSmithKline owned 15% of the other company's shares and the other shareholder the remaining 85%, the positions would be reversed. The result is that the 85%:15% ownership split would correctly describe the entitlements of the two shareholders to the financial benefits from the company - i.e. dividends and other distributions, including the final capital distributions if the company were to be wound up, but the control split would basically be 100%:0%. And since being able to control a company to fit in with one's own financial plans is of value, the straight 85%:15% split isn't in general the best way to arrive at how the companies we own indirectly are doing for us. Accounting rules try to deal with that by treating shareholdings in other companies in different ways according to the percentage owned of that other company. E.g. an 85% subsidiary (a subsidiary is a company that is more than 50% owned) is dealt with by
entirely including the subsidiary's accounts (meaning its own consolidated accounts if it has subsidiaries of its own) in the parent company's consolidated accounts, but adding "minority interest" items to reflect the 15%
non-entitlement to the financial benefits. As another example, the 15% investment is treated like other investments: an asset that has a capital value and might be generating income. There are a number of other treatments, depending on the percentage range the ownership is in - I don't remember all the details (and this footnote is long enough anyway!). But what the accounting rules involved are trying to get at is to some extent a matter of opinion, and so they can only really be an attempt to arrive at it - generally quite a good attempt IMHO, but nevertheless an attempt.
(**) Within the law, of course - the other company cannot be forced to break the legal limit on not paying dividends in excess of its distributable reserves, for example. That might also include having to adhere to previously-made legal agreements GlaxoSmithKline might have made about how it exercises that control. E.g. in some circumstances, a shareholder's agreement made in the course of getting to that ownership distribution might say that the 15% shareholder retains the right to appoint a director: that would limit GlaxoSmithKline's control of the other company's board of directors.
Gengulphus
