With typical bravado, GlaxoSmithKline has, we learned on Saturday, dismissed three takeover bids from Unilever for its consumer healthcare venture with Pfizer, including one worth £50bn received just before Christmas.
The drugmaker, run by Dame Emma Walmsley, has decided to push on with plan A, namely the demerger and stock market flotation this summer of the consumer health business, known for brands such as Aquafresh and Sensodyne toothpaste, along with Panadol and Voltaren for pain relief.
GSK’s confidence that the bids from consumer goods company Unilever, which makes Dove soap and Sunsilk shampoo, “fundamentally undervalued” the venture and its future prospects is based on three pillars.
First, the drugmaker has released new forecasts showing it is now projecting annual sales growth of 4%-6% for the consumer venture, which made sales of £9.6bn last year – higher than the 3%-3.5% analysts have factored in, it says. It believes Unilever’s offer, which is made up of £41.7bn in cash and £8.3bn in Unilever shares, fails to capture this sales potential. It will explain the potential for the consumer brands more fully at an investor day on 28 February, with fourth-quarter results on 9 February also providing an opportunity to justify the strategy.
Second, GSK reckons the Unilever offer does not fully take into account the synergies the deal would create. And third, it argues that any takeover bid needs to come with a higher premium. Many analysts have estimated the value of consumer healthcare at £45bn, with some estimates as high as £48bn.
The New York hedge fund Elliott Management, the activist shareholder that has been pushing for a sale of the consumer health business and a change of leadership, declined to comment, but the much smaller London-based investor Bluebell Capital Partners, which has echoed Elliott’s demands, said Unilever’s bid was “proof that such a high-quality business has the potential to attract interest by strategic and financial buyers”.
GSK has argued that there is no need to hold a formal auction as it has been clear since 2018, when plans for a split were announced, that consumer healthcare was up for grabs.
It would be one of the largest ever deals in London. There are a small number of potential acquirers – only the likes of Reckitt Benckiser, Procter & Gamble and Nestlé would be big enough to stomach such a purchase. Private equity groups are thought to have looked at it too, but it would require a large consortium to pull off a bid.
The consumer business’s chair-designate is the former Tesco boss Sir Dave Lewis, who is also a Unilever veteran and has worked with Unilever’s chief executive, Alan Jope, in the past.
Unilever, for its part, is coming under pressure from previously loyal shareholders as it has missed sales and profit margin targets, and its shares have lagged behind those of its global peers. Terry Smith, founder of the investment manager Fundsmith and a top-10 Unilever shareholder, last week used his annual letter to investors to hit out at Unilever management, saying they had “lost the plot”.
Russ Mould, investment research director at the stockbroker AJ Bell, said: “Jope seems to think he needs to do something and while he may have felt he was pushing on an open door, given GlaxoSmithKline and Pfizer’s spin-off plan, they perhaps believe his need to act is greater than theirs. It’s an interesting dynamic.”
In a brief statement on Saturday, Unilever said the consumer business would be “a strong strategic fit as Unilever continues to reshape its portfolio”. Its statement did not suggest that it was abandoning its pursuit.
“The statements suggest price is the issue, not the lack of desire to sell or lack of desire to buy. A further attempt at a higher price is therefore possible,” said Mould.