Unilever has defended a £50 billion bid for GlaxoSmithKline’s consumer healthcare unit as the ambitious plan attracts skepticism from some analysts and sends its shares down 6 % in early trading on Monday.
Dove soap, mayonnaise maker Hellmann and bleach Domestos said the GSK business was a “strong strategic fit”, as it set out plans to strengthen its presence in the health sector. beauty and hygiene.
“The acquisition will provide the scale and growth platform for the combined portfolio in the US, China and India, along with further opportunities in other emerging markets,” it said, adding. It added that it would sell off “essentially lower growth brands and businesses.”
Unilever’s approaches to GSK Consumer Healthcare, whose brands include Aquafresh toothpaste and pain reliever Panadol, have so far been rejected, but the group still hopes to pursue a deal. , according to people familiar with the situation.
Shares of Unilever fell 6% in early trading to 3707p, while GSK shares rose 5% to 1727p.
GSK and Pfizer, which hold a 32% stake in the consumer healthcare unit, are offering an improved bid of at least £60 billion. GSK has said that Unilever’s £50 billion offer is “basically undervalued” a business it plans to set up by the end of the year.
The reveal of the bid over the weekend prompted Unilever to make an announcement of plans to overhaul its vast portfolio. Chief Executive Officer Alan Jope, who has led the team since the start of 2019, is under pressure to improve performance – and the stock price – which has lagged behind rivals.
However, analysts were quick to express reservations about the possible acquisition of the GSK business, as well as the debt it would incur to Unilever.
“We see little justification for such a deal strategically, operationally or financially,” said James Edwardes-Jones, analyst at RBC Capital Markets. Even seriously considering such a bid raises questions in our minds about management’s confidence in the current business.”
Bruno Monteyne, analyst at Bernstein, said the transaction would result in “a £10 billion destruction of shareholder value”.
“Initial feedback on the deal from investors over the weekend was mostly negative,” said Martin Deboo, an analyst at Jefferies, reflecting low confidence in Unilever’s management and ability to boost sales. boosting the deal’s growth, along with concerns about debt levels.
After any acquisition, Unilever said “the company will aim to return to current levels of business operations in the short to medium term”.
The FTSE 100 team said it would launch a “major initiative to enhance our performance” later this month, including changes to its structure. That follows an earlier strategy update last year, which was met with a lukewarm response.
Unilever has faced growing discontent from investors about its current strategy to drive growth, including an attack from top shareholder Terry Smith last week.