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A sign outside the headquarters of GlaxoSmithKline in London, England. Picture: CHRIS RATCLIFFE/BLOOMBERG
A sign outside the headquarters of GlaxoSmithKline in London, England. Picture: CHRIS RATCLIFFE/BLOOMBERG

GlaxoSmithKline (GSK) has rejected a £50bn offer from Unilever for its consumer goods arm, saying on Saturday that it “fundamentally undervalued” the business and its future prospects and that it will stick to its plan of spinning off the unit.

Unilever confirmed the approach earlier on Saturday, saying the Glaxo unit would be a “strong strategic fit” as it continues to reshape its portfolio spanning food, beauty and home-care brands.

A deal of this size would be the biggest globally since the start of the pandemic, if it goes through. It could also transform Unilever into a formidable beauty and personal care purveyor, taking on Estee Lauder and L’Oreal. For GSK it could bring much-needed relief from investor pressure that has been building over the past year.

GSK said it had received three bids from Unilever, the latest on December 20 comprising £41.7bn in cash and £8.3bn in Unilever shares, which fail to reflect the intrinsic value of the business and its potential.

“The board of GSK therefore remains focused on executing its proposed demerger of the consumer healthcare business ... on track to be achieved in mid-2022,” a statement reads, adding that it is confident the business will beat global market growth rates in the medium term.

The group’s consumer goods business is due to be spun out into a separate listing in the middle of the year.

Britain’s Sunday Times said the Unilever bid for the business made late last year was worth about £50bn and had been rejected as too low by GSK and Pfizer, which owns a minority stake in the division.

Takeover premium

The approach by Unilever, which owns brands such as Dove soap and Marmite, for Glaxo’s portfolio of household brands including Panadol painkillers and Sensodyne toothpaste is understood to have been unsolicited, the report added.

The bid did not include any takeover premium or recognition of synergies, the newspaper said, adding that it is not clear whether the group will make a higher offer.

Dave Lewis, who is due to head GSK’s consumer health unit, declined to comment on the approach. He said the matter is for GSK’s board.

Unilever declined to comment on whether it will return with a higher bid. “There can be no certainty that any agreement will be reached.”

Brokerage Jefferies last year put a valuation for the whole consumer unit at £45bn.

If a deal goes through, GSK’s consumer health unit’s brands are likely to be incorporated into Unilever’s beauty and personal care business, its biggest by sales.

Performance in the unit, which sells Dove, Lifebuoy, Axe and Vaseline, has been tepid during the pandemic as fewer people venture out or attend social occasions, while higher costs of plastics and petrochemicals have also dented margins.

In its most recent quarter, beauty and personal care volumes fell 1.3% while prices rose 3.9%.

Unilever’s CEO Alan Jope is under pressure to turn around its languishing stock price as it struggles to compete in the face of high inflationary costs, especially in emerging markets, its biggest source of revenue.

The FTSE-listed conglomerate’s stock has fallen 10% over the past year compared with Procter & Gamble’s 18% rise and Reckitt’s 1.4% decline, despite a pandemic-driven boost in shopping for groceries and household goods, which has benefited all three companies.

British fund manager Terry Smith, whose Fundsmith vehicle is one of Unilever’s 10 biggest investors, this week criticised the group for promoting sustainability credentials at the expense of performance.

Since taking over from Paul Polman as CEO in 2019, Jope has laid out a vision for Unilever called “brands with purpose”, a socially conscious strategy that would see the company focus investments and marketing on brands that “communicate a strong environmental or social purpose” even at the cost of profit.

“A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches),” Smith said.

Smith was not immediately available to comment on the offer.

Jope, however, has kept to his promise of streamlining the company. The company sold a majority of its tea business, including Pukka Tea and PG Tips, to CVC Capital Partners for $5bn late last year and has been looking to offload a portfolio of slow-growing beauty brands.

Investor activism has also reared its head at GSK. In April last year, US activist hedge fund Elliott Management revealed a multibillion pound stake in GSK, putting pressure on CEO Emma Walmsley to explore a shake-up of the company after it fell behind in the Covid-19 vaccine race.

Fledgling activist investor Bluebell Capital Partners, fresh off its success in ousting the CEO of Danone last year, also took a stake in GSK in September, making demands including asking Walmsley to reapply for her job, citing a lack of scientific expertise.

For Unilever, the deal would be the biggest move for Jope since becoming CEO in 2019. He has previously shot down suggestions that Unilever was in the market for big deals, saying instead that the company would focus on smaller acquisitions in fast-growing areas such as luxury beauty, plant-based foods and health and wellness.

If a deal with GSK does go through, it would be Unilever’s second with the company after it bought its health food drinks business, including Horlicks, in India and other Asian markets for €3.3bn in 2018.

The consumer remedies industry, which has traditionally been attached to the prescription drug sector, is also in a phase of major transformation as several pharma companies no longer see a benefit in a combination.

Johnson & Johnson in November unveiled plans to spin off its consumer health division, owner of the Listerine and Baby Powder brands, to focus on pharmaceuticals and medical devices. Sanofi has said its consumer unit would become a “stand-alone” business.



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