The UK pharmaceutical firm - behind many well-known brands including Aquafresh toothpaste, Panadol and Beechams cold and flu remedies - said it would control 68% of the joint venture.
USA -based Pfizer will own the remaining 32 percent stake. Its consumer products business will be a joint venture with Pfizer, which was trying to get rid of its consumer business to focus on prescription drugs for about a year, reported the Wall Street Journal.
Pfizer's consumer business includes Anadin and Chapstick, and the merger with GSK's division will create a business generating £9.8bn in annual sales.
The deal paves the way for British group GSK to have two UK-listed companies, one specialised in the development of drugs and the other in consumer healthcare.
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To achieve this, GSK intends to separate the JV as an independent company - within three years of closing the transaction - via a demerger of its equity interest to its shareholders and listing the firm on the United Kingdom equity market.
Some planned divestments of $1.3 billion would be expected to cover the costs of the integration.
"Ultimately, our goal is to create two exceptional United Kingdom -based global companies with the right capital structures, both of which are well positioned to deliver improving returns to shareholders and significant benefits to patients and consumers worldwide", she said. But the move surprised analysts because Walmsley, who took over in April, had seemed at first to be following in the footsteps of her predecessor, Andrew Witty, in resisting such a change.
"What this deal is all about is the opportunity to strengthen two businesses - a world-leading consumer healthcare business and a new GSK that is focused on pharma and vaccines".
According to GSK, the JV "will be the global leader in over-the-counter (OTC) products with a market share of 7.3% ahead of its nearest competitor at 4.1%".