Key points:
- Glaxo stock dropped yesterday on the Haleon demerger
- Glaxo shares regained all the lost ground this morning
- This is the result of a consolidation, not a real price movement
- key point
Glaxo (LON: GSK) shares, or GlaxoSmithKline as we used to know them, have jumped 24% this morning on the completion of the second leg of the Haleon (LON: HLN) demerger. It's possible to say that the rise today is, in fact, a bit of a swizz as it's a purely nominal change in price, it doesn't affect the real value of either GSK the company or of holdings in Glaxo shares. For it's all the result of a consolidation.
As we mentioned yesterday Glaxo shares fell 18% on the Haleon demerger. This makes sense, as on Friday everyone owned GSK shares which included the value of Haleon, whatever that was, on Monday they owned GSK and HLN shares separately. The value of the Glaxo shares should, therefore, have fallen by whatever Halon stock was worth. The bundle of the two should equal the bundle of the two that is. As it turned out this wasn't entirely and wholly so, Haleon declined upon the day. But it was still roughly and around and about so. The bundle of Glaxo and Haleon shares on Monday was worth about what the bundle of Glaxo including Haleon was on Friday.
However, this did lead to an 18% fall in that headline price of Glaxo shares. For some reason the management wasn't happy about this and so they did something about it. There's a certain amount of muttering about wanting to make price and earnings comparisons across the demerger easier or something but it's not entirely obvious that this was really a good reason. Still, Glaxo had a share consolidation. The aim of which was to get the nominal price of GSK back up to what it was before the Haleon demerger. This meant having to wait until it could be seen what the effect of the demerger was on the Glaxo share price, of course.
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So, on Monday we had the 18% decline in the GSK share price. Today we get the 24% rise in GSK stock. Purely and wholly a result of the consolidation. The announcement is here and it's fun to note that this leaves Glaxo with shares of 31 1/4 pence paid up capital value. Quite possibly a silly thing but then the aim was, entirely and wholly, to get the nominal price back up to the pre-demerger one. Something that we can see from the chart has happened. The one day dive in the price, now back to the starting point.
Yes, the 18% decline does need to be followed by the 24% rise because that's how percentages work – we need a higher percentage rise to gain the same £3 and change rise because the denominator is smaller.
What does need to be emphasised is that the value of any specific shareholding in GSK hasn't changed as a result of this consolidation – nor has the market capitalisation of Glaxo. This is a purely nominal change in price for those comparability over time reasons. This also means that it has no implication whatsoever for the future value of Glaxo, or even Haleon, shares. They will be determined by the performances of the respective underlying businesses, not by nominal changes like consolidations.