GSK would own 68% of the new company, with Pfizer owning the rest. The new company would be the world's biggest in the space, with over 7% of the market. It would contain brands such as Panadol, Robitussin and Sensodyne.
The deal with Pfizer would see GSK split in two within three years, with the merged consumer health division having a separate listing on the London Stock Exchange.
This measure will enable GSK to focus on developing a pipeline of experimental drugs that it considers most profitable.
Most of GSK's £24bn debt would be put on the consumer healthcare company, leaving more money for the innovative company to invest in its target areas of oncology, genetics, vaccines, HIV and respiratory diseases.
This represents a big shake-up for the company, which had previously resisted calls from investors for this change, and comes 18 months since Emma Walmsley took over as CEO. She has already replaced the entire senior management team and refocused the spending on R&D while also cutting costs.
The news comes amid other activity showing GSK's hand and focus. GSK has sold its drinks business including Horlicks in Asia to Unilever for £3.1bn. And it has acquired Tesaro, a Boston-based loss-making biotech oncology business, for £4bn. Tesaro has an ovarian cancer drug, Zejula, which GSK wants to develop for other types of cancer and in combination with its own oncology treatments. Zejula prevents cancer cells from being repaired, causing them to die.
Any news involving GSK is big news for the UK's pharma industry. This is a massive strategic statement and change of direction, and could have ripple effects for the sector. In particular, some people have praised the focus, while others have voiced concerns that the streamlined structure could make GSK more susceptible to a takeover.