Consumer goods giant Unilever is working on a £50billion megadeal to buy part of rival GlaxoSmithKline, an acquisition that would transform the group.
GSK revealed last night that Unilever had made three approaches late last year – the third for £41.7billion cash and £8.3billion shares.
Unilever, 92-year-old owner of Lipton tea and Ben & Jerry’s ice cream, wants to seize GSK’s consumer division, adding the likes of Sensodyne, Nicorette and Panadol to its portfolio of brands.
Brush off: Glaxo rejected Unilever’s secret offer for Sensodyne toothpaste maker before Christmas. The most recent offer was for third for £41.7billion cash and £8.3billion shares
The deal would also propel Unilever in size, adding about £10billion in sales and challenging Procter & Gamble as the second biggest consumer goods group in the world behind Nestle.
Unilever confirmed yesterday it had made an unsolicited approach ‘about a potential acquisition’ to GSK and Pfizer, which owns a stake in the division. The approach was rejected.
The Mail on Sunday understands that Unilever, which also owns Marmite and Dove soap, is this weekend preparing to restart talks.
In a statement yesterday, Unilever said: ‘GSK Consumer Healthcare is a leader in the attractive consumer health space and would be a strong strategic fit as Unilever continues to reshape its portfolio. There can be no certainty that any agreement will be reached’.
GSK said it ‘rejected all three proposals made on the basis that they fundamentally undervalued the Consumer Healthcare business and its future prospects’.
It added that the business can ‘deliver annual organic sales growth in the range of 4-6 per cent over the medium term.’
The boards of GSK and Pfizer would have to consider higher bids, as part of their fiduciary duty to shareholders. The consumer division is valued by analysts at about £42billion. Goldman Sachs has assigned it a £48billion price tag.
Richard Buxton, fund manager at Jupiter Asset Management who has invested in GSK for a decade, said the pharma giant was ‘absolutely right to reject it’.
He added: ‘Unilever would be completely the wrong people to run it, given their own lacklustre performance.’ GSK is focused on demerging its consumer healthcare division by the middle of this year, provisionally through a flotation.
The unit is chaired by Sir Dave Lewis, who formerly led Tesco. He had also previously worked with Alan Jope, who is now chief executive of Unilever.
Buxton added: ‘The approach demonstrates GSK’s consumer business is a hidden gem and with the demerger there’ll be a real beginning of an understanding of what a fabulous business it is.
‘You want to demerge and let the market spend 18 months to two years understanding the business in its own right and rating it accordingly, and I’m sure it’s worth a lot more than £50billion.’
Household names: Panadol is another one of the portfolio of brands that Unilever could add to its stable, if its deal for GlaxoSmithKline’s consumer division went ahead
The Sunday Times, which reported Unilever’s interest on its website yesterday, said it is not yet clear whether Unilever’s shareholders would back such a bold acquisition.
News of the approach broke just days after Unilever came under fire from high-profile fund manager Terry Smith, who said the FTSE100 company had ‘lost the plot’ and ‘become obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals’.
Billionaire investor Peter Hargreaves said he agreed that Unilever must not become ‘bogged down’ with strategies that do not deliver for shareholders.
The City veteran, whose Blue Whale fund held the shares until 2020, said that focusing too much on environmental, social and governance targets could be a distraction.
He said: ‘The most important thing for any business is profitability, because if a company is profitable you can afford to do all these [sustainable] things.’
Unilever has seen its shares drop by a tenth over the past year to £16.43. Jope, who became chief executive in 2019, is attempting to refocus on higher growth products and sectors.
Buying GSK’s consumer division would allow the product ranges to benefit from being part of a much larger group, potentially making the combined value greater.
It is estimated Unilever already has a presence in about 40 per cent of GSK’s consumer businesses.
Unilever found itself on the defensive in 2017 when it faced a £115billion hostile bid from US giant Kraft Heinz.
It fended off the approach. But then last year it was rocked by rumours it could be broken up by activist City funds, such as Veteran US activist Nelson Peltz.
GSK, which is led by Dame Emma Walmsley, has also come under pressure from activist investor Elliott Advisers.
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