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GSK rejects Unilever’s £50bn bid for consumer goods

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GlaxoSmithKline said on Saturday it had rejected a £50bn bid from Unilever for its consumer goods arm, saying it was “fundamentally undervaluing” the business and its future prospects and that it was would stick to his plan to split the unit.

Unilever confirmed the approach earlier on Saturday, saying the Glaxo unit would be a “strong strategic fit” as it continues to reshape its portfolio spanning food, beauty and homecare brands.

A deal of this size would be the largest in the world since the start of the pandemic, if it materializes. It could also turn Unilever into a formidable supplier of beauty and personal care products, taking on Estee Lauder and L’Oreal, while for GSK it could provide much-needed relief from the investor pressure that has built up over the of the past year.

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GSK said it had received three offers from Unilever, the latest on December 20 comprising £41.7bn in cash and £8.3bn in Unilever shares, which did not reflect the intrinsic value of the business and its potential .

“GSK’s board therefore remains focused on executing its proposed spin-off of the Consumer Healthcare business…on track to be completed in mid-2022,” the statement said, adding that it was confident that the company would beat global market growth rates in the medium term. term.

The group’s consumer goods business is expected to be listed separately in the middle of this year.

Earlier Britain’s Sunday Times said Unilever’s bid for the company made late last year was worth around £50bn and had been rejected as too low by GSK and Pfizer, which owns a minority stake in the division.

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The approach by Unilever, which owns brands such as Dove and Marmite soap, to Glaxo’s portfolio of household brands, including Panadol painkillers and Sensodyne toothpaste, was reportedly unsolicited, the report adds.

The offer did not include any acquisition premium or recognition of synergies, the newspaper said, adding that it was unclear whether the group would make a superior offer.

Dave Lewis, who is to lead GSK’s consumer health unit, declined to comment on the approach. The former boss of British grocer Tesco said the case involved GSK’s board.

Unilever declined to say whether it would return with a higher offer. “There can be no certainty that an agreement will be reached.” Last year brokerage firm Jefferies valued the entire consumer unit at £45 billion.

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If a deal is struck, brands from GSK’s consumer health unit would likely be integrated into Unilever’s beauty and personal care business, its largest by sales.

Performance for the unit, which sells Dove, Lifebuoy, Ax and Vaseline, has been lukewarm during the pandemic as fewer people venture out or attend social events, while higher costs for plastics and petrochemicals also weighed on margins.

In its most recent quarter, beauty and personal care volumes fell 1.3% while prices rose 3.9%.

INVESTOR PRESSURE

Unilever Chief Executive Alan Jope is under pressure to recover its languishing share price as it struggles to compete against high inflationary costs, particularly in emerging markets, its main source of income.

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Shares of the FTSE-listed conglomerate have fallen 10% over the past year compared to P&G’s 18% rise and Reckitt’s 1.4% fall, despite an increase in grocery purchases and of household items due to the pandemic which benefited all three companies.

UK fund manager Terry Smith, whose vehicle Fundsmith is one of Unilever’s top 10 investors, this week criticized the group for promoting sustainability credentials at the expense of performance.

Since taking over from Paul Polman as CEO in 2019, Jope has set out a vision for Unilever called “brands with purpose”, a socially responsible strategy that would see the company focus its investment and marketing on brands that “communicate a strong environmental or social objective”. even at the expense of profit.

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“A company that feels it has to define the purpose of Hellmann’s Mayonnaise has, in our view, clearly lost track. The Hellmann’s brand has been around since 1913, so we believe consumers now understand its purpose (spoiler alert – salads and sandwiches),” Smith said.

Smith was not immediately available for comment.

Jope, however, kept his promise to streamline the business. The company sold the majority of its tea business, including Pukka Tea and PGTips to CVC Capital partners for $5 billion late last year and is seeking to offload a portfolio of beauty brands to slow growth.

Investor activism has also surfaced at GSK.

In April last year, US activist hedge fund Elliott Management disclosed a multi-billion pound stake in GSK, pressuring CEO Emma Walmsley to explore a company overhaul after falling behind in the race for the COVID-19 vaccine.

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Fledgling activist investor Bluebell Capital Partners, fresh off its success in ousting Danone’s CEO last year, also took a stake in GSK in September, making demands including asking Walmsley to reapply for his position, citing a lack of scientific expertise.

A LOT FOR JOPE

For Unilever, the deal would be Jope’s biggest move since becoming CEO in 2019.

He previously dismissed suggestions that Unilever was in the big deal market, saying instead the company would focus on smaller acquisitions in fast-growing areas such as luxury beauty, plant-based foods and health and well-being.

If an agreement with GSK is reached, it will be Unilever’s second with the company after buying its health drinks business, including Horlicks, in India and other Asian markets for 3.3 billion euros in 2018.

The consumer remedies industry, traditionally attached to the prescription drug sector, is also in a phase of major transformation, as many pharmaceutical companies no longer see benefit in a combination.

Johnson & Johnson announced plans in November to spin off its consumer health care division, which owns the Listerine and Baby Powder brands, to focus on pharmaceuticals and medical devices. Sanofi said its consumer unit would become a “standalone” business.

($1 = 0.7314 pounds)

(Additional reporting by William Schomberg; Editing by Mark Heinrich, Jan Harvey and David Evans)

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