GSK bets on a stronger offer for its consumer healthcare business | GlaxoSmithKline

With typical bravado, GlaxoSmithKline has, we learned on Saturday, rejected three takeover bids from Unilever for its consumer healthcare business with Pfizer, including one worth £50bn received just before Christmas.

The drugmaker, led by Dame Emma Walmsley, has decided to press ahead with its plan A of splitting off and going public this summer from the consumer healthcare sector, known for brands such as Aquafresh toothpaste and Sensodyne , as well as Panadol and Voltaren for pain. relief.

GSK’s belief that the offerings from consumer goods company Unilever, which makes Dove soap and Sunsilk shampoo, “fundamentally undervalues” the company and its future prospects rests on three pillars.

Firstly, the drugmaker released new forecasts showing it now expects annual sales growth of 4% to 6% for the consumer business, which achieved sales of £9.6bn last month. last year – more than the 3% to 3.5% assumed by analysts, that said. He believes that Unilever’s offer, consisting of £41.7bn in cash and £8.3bn in Unilever shares, fails to capture this selling potential. He will further explain the potential for consumer brands at an investor day on Feb. 28, with fourth quarter results on Feb. 9 also providing an opportunity to justify the strategy.

Second, GSK believes that Unilever’s offer does not fully take into account the synergies the deal would create. And third, he argues that any takeover bid must come with a higher premium. Many analysts have put the value of consumer healthcare at £45bn, with some estimates as high as £48bn.

New York-based hedge fund Elliott Management, the activist shareholder that has pushed for the sale of the consumer healthcare business and a change in management, declined to comment, but much smaller London-based investor Bluebell Capital Partners, which echoed Elliott’s demands, said Unilever’s offer was “proof that a business of such quality has the potential to attract interest from strategic and financial buyers. “.

GSK argued there was no need for a formal auction because it had been clear since 2018 when plans for the split were announced that consumer healthcare was up for grabs.

It would be one of the biggest deals ever in London. There are a small number of potential buyers – only Reckitt Benckiser, Procter & Gamble and Nestlé would be big enough to support such a purchase. It is believed that private equity groups have also considered it, but it would take a large consortium to launch a bid.

The consumer business’ designated chairman is former Tesco boss Sir Dave Lewis, who is also a Unilever veteran and has worked with Unilever chief executive Alan Jope in the past.

Unilever, for its part, is under pressure from previously loyal shareholders as it has failed to meet its sales and profit margin targets, and its shares are lagging those of its global peers. Terry Smith, founder of investment manager Fundsmith and one of Unilever’s top 10 shareholders, last week used his annual letter to investors to hit out at Unilever management, saying they had ‘lost the thread’ .

Russ Mould, director of investment research at stockbroker AJ Bell, said: “Jope seems to think he has to do something and while he may have felt he was opening an open door, given GlaxoSmithKline and Pfizer’s spin-off plan, they believe maybe 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 solid strategic fit as Unilever continues to reshape its portfolio.” Her statement did not suggest that she was abandoning her pursuit.

“The statements suggest that price is the problem, not lack of desire to sell or lack of desire to buy. So a retry at a higher price is possible,” Mold said.

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