Unilever sinks as critics slam its £50bn bid for GlaxoSmithKline’s consumer healthcare arm… but shares in the pharma giant rally
Unilever was forced onto the defensive after its plans to buy GlaxoSmithKline’s consumer healthcare division sent shares tumbling 7 per cent.
In a hastily convened press conference yesterday morning, the consumer group’s boss Alan Jope said the GSK business ‘would be a strong strategic fit’ his firm.
He also insisted a deal would be ‘attractive’ to shareholders having seen three bids turned down by the pharmaceuticals giant, including the most recent offer of £50billion.
In a hastily convened press conference, Unilever chief executive Alan Jope (pictured) said the GSK business ‘would be a strong strategic fit’ for Unilever
But Unilever shares fell 274.5p to 3662p, wiping £7billion off the £100billion company to leave it worth £93billion.
GSK’s consumer brands include Aquafresh, Sensodyne, Advil, Panadol, Chapstick and Centrum while Unilever owns Dove, Domestos, Marmite, Ben & Jerry’s and Hellmann’s.
Dismissing Unilever’s latest £50billion approach over the weekend, GSK said it ‘fundamentally undervalued’ the business, which is 32 per cent owned by Pfizer.
Analysts believe that Unilever will have to raise its bid to £60billion to secure a deal – a price tag many fear is too high.
Jobs at risk in shake-up
Unilever will announce a ‘major initiative’ to streamline the business this month – raising fears over jobs.
Chief executive Alan Jope said he will scrap the company’s clunky operating model and make it more ‘simple’ and ‘agile’ to boost growth.
He did not rule out job losses when asked about the restructuring, saying only that the changes were ‘focused on growth, not cost’.
An analyst said the changes would be an opportunity to ‘reduce headcount’ but would ‘not necessarily’ mean staff would be cut.
The analyst said: ‘The idea is for them to be more agile and more relevant to local consumers and trends.
‘It could also be an opportunity to reduce headcount, but not necessarily.’
Jope said: ‘This is not driven by cost.
‘We are going to announce later this month a simple model, which is designed for speed and agility.’
Unilever has 149,000 staff worldwide.
‘The market has given a thumbs down,’ said Russ Mould, investment director at AJ Bell.
‘The negative share price reaction probably reflects investors’ fears that Unilever is going to come back with a higher offer and potentially pay too much.’
Such a takeover would be one of the biggest completed in London, and the biggest in the world since the outbreak of Covid.
But it would likely push Unilever’s debt pile from the current level of £19billion to well over £55billion.
Jope said attempts to buy GSK’s consumer arm were part of his strategy to pivot away from food and instead focus on faster-growing health, beauty and hygiene brands.
This will see Unilever get rid of poor performing food brands and could see Marmite sold.
Unilever could even offload its whole food and refreshments arm, though Jope stressed brands such as Hellmann’s and Ben & Jerry’s were growing well in a sign they could remain part of the company’s future.
The money from sales will be used to fund takeovers of health, hygiene and beauty brands which Unilever hopes will help turn around years of slow sales growth.
The strategy comes after recent moves by Unilever to slim down its 400-plus brand portfolio into a smaller group of market leaders.
In December 2017 it sold its spreads business which included Flora butter, and in November last year it sold its tea business including PG Tips.
But critics have called on Unilever to ‘fix its own business’ rather than take over others.
The company was last week slammed by leading investor Terry Smith who said it has ‘lost the plot’ over its focus on social issues.
Laying out his plans, Jope said GSK was not ‘the only option’ and if a deal does not go through he would pursue other consumer healthcare brands.
He said he would only pursue takeovers which are ‘value creating’ and they would come on top of ‘improving the performance of Unilever’s existing business’.
But his defence of Unilever’s interest in GSK failed to win over doubters in the City.
Bruno Monteyne, senior analyst at Bernstein, said it was ‘mind-blowing’ that Unilever thought such a big deal would benefit shareholders.
Monteyne also said the fact Unilever is planning further deals if it does not buy GSK consumer health is ‘really worrying’.
He said: ‘They have lost touch with reality with what investors think is credible and what the industry has known to work and not work.
‘Even of people who like Unilever shares, not a single one thinks this kind of deal the size of GSK makes any sense. It’s way too big.
There is plenty of academic research and anecdotal evidence that mega big deals extremely rarely work, why does Unilever think with their track record in the industry they will buck the trends?’
Investors bet on Glaxo bidding war
GlaxoSmithKline shares rose as investors bet on a bidding war for its consumer healthcare arm.
GSK boss Emma Walmsley is spinning off the division – whose brands include Aquafresh, Advil and Chapstick – into a standalone company listed on the stock market in London.
She will then focus on developing cutting edge pharmaceuticals at GSK while keeping a 20 per cent stake in the new consumer business.
But Unilever looks set to have sparked a bidding war having already seen three offers rejected, including one worth £50billion.
Other consumer health firms are thought to be looking at making rival bids while private equity is also understood to be circling.
Advent International, CVC Capital Partners and KKR have all shown an interest in the firm.
The prospect of a bidding war sent GSK shares up 4.1 per cent, or 66.8p, to 1707.8p, valuing the whole company at £86billion.
Walmsley must decide whether to press ahead with her original plan to demerge and list the new business, or hold out for a higher offer from Unilever or another bidder.
It is thought a price tag of £60billion could tempt GSK to sell.
Walmsley has faced pressure from activist investors Elliott Management, which wants a full sale of the business.
But Richard Buxton, a fund manager at long-term GSK investor Jupiter Asset Management, said she should fend off pressure from activists looking for ‘a quick buck’.
He said: ‘GSK investors should play the long game.’