Unilever has said it will not increase its offer for GlaxoSmithKline’s consumer healthcare division above £50bn after investors and analysts balked at the risk of it pulling off a large merger.
Data shared by GSK suggested the “fundamental value” of the business was no higher than £50bn, Unilever said after the stock market closed on Wednesday.
Unilever, which owns brands ranging from Hellmann’s mayonnaise to Dove soap, made three offers to GSK, the last of which was worth £50bn in cash and Unilever shares. GSK is planning to list its consumer arm, which includes brands such as Aquafresh toothpaste and Panadol, by the summer.
News of the bids was leaked at the weekend, forcing Unilever to clarify its strategy. In a hastily arranged announcement its chief executive, Alan Jope, said the company was planning to focus on fast-growing health, beauty and hygiene brands and sell slower-growing operations, with parts of its vast food portfolio a key candidate.
However, investors did not appear to welcome Unilever’s ambition. Its share price dropped by almost 11% on Monday and Tuesday, before rallying by 4.5% on Wednesday.
The credit rating agency Fitch on Tuesday said a debt-fuelled purchase of GSK consumer healthcare division could trigger a “multi-notch downgrade” of Unilever’s rating, which could make borrowing much more expensive and force some investors to dump the shares.
Unilever has struggled under Jope’s leadership, and shares remain almost 30% below their 2019 record high. The market value has fallen by a fifth during the last 12 months even as the FTSE 100 has gained 13%.
The company was criticised by Terry Smith, a prominent fund manager, for focusing on sustainability rather than the fundamentals of the business – although Jope argues that environmental, social and governance credentials will protect it financially in the long term.
Yet Unilever is also facing pressure from another front, with some shareholders keen to see it push further on improving the health of customers, adding to its ambitious goal of net zero carbon emissions by 2039. On Thursday, Unilever investors who manage $215bn (£148bn) in assets revealed they had filed a shareholder resolution urging the company to adopt ambitious targets to increase the share of healthy foods in its sales.
The UK’s largest local government pension fund, the Greater Manchester Pension Fund, was among the investors backing the resolution, which will be voted on at Unilever’s next annual meeting. Other backers include the pan-European asset manager Candriam, the Dutch asset manager actiam, the US healthcare provider Trinity Health and the British asset manager CCLA.
Ignacio Vazquez, a senior manager of healthy markets at ShareAction, a campaign group which helped to coordinate the resolution, said: “Unilever has long been a sustainability leader. Some even criticise it for being too focused on the environmental, social and governance [ESG] issues. Yet the health profile of the food and drink products it sells remains a blind spot. This is surprising, as the rapid growth of regulation means that health is a critical ESG issue presenting a real financial threat to its business.”
In its statement on Wednesday, Unilever said: “We note the recently shared financial assumptions from the current owners of GSK consumer healthcare and have determined that it does not change our view on fundamental value. Accordingly, we will not increase our offer above £50bn.”
GSK said on the weekend that the £50bn bid “fundamentally undervalued” the business, suggesting a merger with Unilever would be unlikely.
Unilever added that was “committed to maintaining strict financial discipline to ensure that acquisitions create value for our shareholders”, rather than chasing market share at the expense of profitability. Jope on Monday characterised the approach as “improving the quality of Unilever, not necessarily the size of Unilever.”
