Unilever defends €60bn bid for GSK consumer health unit

Unilever has defended its £50 billion (€60bn) bid for the consumer health unit of GlaxoSmithKline as the ambitious plan drew scepticism from some analysts and sent the group's shares down over 7 per cent at one point in trading on Monday.

The maker of Dove soap, Hellmann's mayonnaise and Domestos bleach said the GSK business was a "strong strategic fit" as it set out plans to increase its presence in health, beauty and hygiene.

"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, adding that it would sell off "intrinsically lower growth brands and businesses".

Unilever's approaches for GSK Consumer Healthcare, home to brands including Aquafresh toothpaste and Panadol painkillers, have so far been rebuffed, but the group still hopes to pursue a deal, according to people familiar with the situation.

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Shares in Unilever fell 6 per cent in early trading to 3707p, while GSK stock rose 5 per cent to 1727p.

GSK and Pfizer, which holds a 32 per cent stake in the consumer health unit, are holding out for an improved bid of at least £60 billion. GSK has said that Unilever's £50 billion offer "fundamentally undervalued" a business that it intends to spin off later this year.

The revelation of the bid over the weekend prompted Unilever to bring forward an announcement of plans to overhaul its sprawling portfolio. Chief executive Alan Jope, who has led the group since early 2019, is under pressure to improve a performance – and share price – that has lagged that of rivals.

Reservations

However, analysts were quick to voice reservations about a potential acquisition of the GSK business, as well as the debt with which it would saddle Unilever.

James Edwardes-Jones, analyst at RBC Capital Markets, said: “We see little justification for such a deal strategically, operationally or financially. Even seriously contemplating such a bid raises questions in our mind about management’s confidence in the current business.”

Bruno Monteyne, analyst at Bernstein, said the transaction would entail "£10 billion of shareholder value destruction".

Martin Deboo, analyst at Jefferies, said that "initial feedback on the deal from investors over the weekend has been almost uniformly negative", reflecting low confidence in Unilever management and the potential of the deal to boost growth, together with concerns about debt levels.

Unilever said that after any acquisition “the company would target a return to current levels of gearing over the short to medium term”.

The FTSE 100 group said it would set out a “major initiative to enhance our performance” later this month, including changes to its structure. That follows an earlier strategic update last year, which met with a lukewarm response.

Unilever has faced rising discontent from investors over its existing strategy to boost growth, including an attack from top-10 shareholder Terry Smith last week. – Copyright The Financial Times Limited 2022