Unilever signals pursuit of GSK consumer arm; shares fall

Unilever signaled on Monday, January 17, it would pursue a deal for GlaxoSmithKline‘s consumer healthcare business, calling it a “strong strategic fit,” but its shares fell more than 7%, highlighting investors’ doubts about its 50-billion-pound ($68.4 billion) offer.

GSK confirmed over the weekend that it had rejected the Dove soap maker’s bid for the business, which is home to brands such as Sensodyne toothpaste, Emergen-C vitamin supplement, and Panadol painkiller.

GSK, led by boss Emma Walmsley, has hired Goldman Sachs and Citigroup to review Unilever’s approach but it will not engage in talks unless Unilever bumps up its offer, sources familiar with the matter said.

GSK’s shares jumped 5% in early trading to their highest level since May 2020. GSK said on Saturday, January 15, Unilever’s proposal “fundamentally undervalued” the business, adding that it would stick to its plan of listing the division this year.

“Initial feedback on the deal from investors over the weekend has been almost uniformly negative,” Jefferies analysts said in a note.

Unilever, however, defended the bid for the GSK consumer business, in which US drugs company Pfizer owns a 32% stake.

“The acquisition would create scale and a growth platform for the combined portfolio in the US, China, and India, with further opportunities in other emerging markets,” Unilever said, pointing to synergies in the oral care and vitamin supplements business.

GSK and Pfizer would open negotiations with Unilever’s boss Alan Jope if the consumer goods giant was ready to improve its bid to more than 60 billion pounds, a source familiar with Pfizer’s strategy said.

The source called the business a “legitimate standalone candidate,” adding its market value could rise to almost $100 billion once the business was spun out and listed.

“Right now there is more value in a spin-off but if Unilever is ready to go north of 60 billion pounds then a dialogue could start,” he said.

Pfizer did not immediately respond to requests for comment on the fate of GSK’s consumer arm.

Execution

A Unilever buyout would be one of the largest ever on the London market and one of the biggest deals globally since the start of the pandemic.

It would boost Unilever’s growth strategy as management has been under pressure to turn around the company’s languishing stock price and cope with high costs and slim margins.

“It’s a little surprising that they (GSK) haven’t ripped Unilever’s arm off at £50 billion, as it’s a decent price, with the only question being as to whether it’s the right one,” CMC Markets analyst Michael Hewson said in a note.

“It might be for GlaxoSmithKline and Pfizer, however there is a feeling that for Unilever it could well prove to be too high a price,” Hewson added.

Barclays analysts said the deal would be “very complex to execute in normal times, let alone in the middle of a global pandemic.”

Unilever, which is set to announce an initiative later this month to strengthen its business, said on Monday it was committed to “strict financial discipline” for any acquisitions, adding that such deals would be accompanied by the divestment of lower margin businesses or brands.

GSK has been pursuing a separate listing of the consumer arm following pressure from investors to explore a shake-up of the company and focus on its pharmaceuticals business. – Rappler.com

$1 = 0.7312 pounds