Unilever has signalled it will pursue a deal for GlaxoSmithKline’s consumer healthcare business, calling it a “strong strategic fit” after its 50-billion-pound (US$68.4 billion) offer was rebuffed, sending its shares down 6 per cent.
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.
Its shares jumped 5 per cent in early trading to their highest level since May 2020. GSK said on Saturday Unilever’s proposal “fundamentally undervalued” the unit, 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.
“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,” it said, pointing to synergies in the oral care and vitamin supplements business.
The Marmite maker held talks with banks about additional financing for a potential sweetened offer, Bloomberg News reported on Sunday, citing people familiar with the matter. Unilever declined to comment on the discussions.
The GSK consumer business, in which US drugs company Pfizer owns a 32-per-cent stake, has annual sales of almost 10 billion pounds.
“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.
Execution
While a deal of this size would be the biggest globally since the start of the pandemic if it goes through, Unilever boss Alan Jope has been under pressure to turn around its languishing stock price as it struggles with high costs.
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 its consumer arm following pressure from investors to explore a shake-up of the company and focus on its pharmaceuticals business.
- Reporting by Pushkala Aripaka in Bengaluru and Keith Weir in London; Editing by Shounak Dasgupta, of Reuters.
