Analysts, Markets Think Unilever’s GSK Consumer Bid Is a Bad Idea – WWD

LONDON – Bad opinion.

Analysts include Unilever didn’t hold back their feelings about group’s £50 billion bid for GlaxoSmithKline’s consumer healthcare division, surfaced over the weekend and sent UnileverPrices fell sharply on Monday.

On Saturday, Unilever confirmed its interest in buying the division, a joint venture between GSK and Pfizer that owns brands including Sensodyne toothpaste, Centrum multivitamins and pain reliever Advil, saying there would be synergies and room to scale brands in China, India and the US. , where Unilever already has a strong presence.

GSK was quick to respond, saying it was not interested in Unilever’s bid and would pursue plans to decouple its consumer healthcare division through a sale or public listing. British pharmaceutical giant installed Sir Dave Lewis, the former Unilever executive who later turned the ailing Tesco around, as the designated executive chairman for the new post-spin-off entity.

As reported on Saturday, GSK confirmed that it had received three unsolicited, conditional and non-binding proposals from Unilever plc, the latest of which was worth £50 billion. It denied all.

GSK said it believes all three bids “fundamentally underestimated the Consumer Healthcare business and its future prospects.”

Unilever did not give up, and on Monday the company reiterate my strategy of focusing on health, the beauty and hygiene category, has “a higher sustained market growth rate and significant opportunities to drive growth through investment and innovation,” according to the company.

It argued that GSK Consumer Healthcare would be a “strong strategic fit” and noted that 45% of GSK Consumer Healthcare is in the oral care and VMS (vitamins, minerals, supplements) sectors, which are not where Unilever “has a presence and considerable capacity. ”

The company said the acquisition of GSK’s consumer arm will also provide “value and certainty” to GSK and Pfizer shareholders.

The market is not very convincing: Unilever shares closed down nearly 7% on Monday at £36.62. GSK shares rose more than 4% to close at 17.09 pounds on the London Stock Exchange.

Analysts have made clear their feelings about a future deal.

Bernstein said the potential deal “doesn’t make sense” and predicts £10bn will “ruin value” for Unilever shareholders, assuming the British giant ends up paying too much for it. GSK division.

Bernstein also downgraded Unilever shares to “underperform” with a target price of £35.

“We think this is a very bad deal for Unilever shareholders,” wrote Bruno Monteyne, Bernstein senior analyst for European food, personal care and home appliances.

He noted that Unilever would not be a better owner of GSK’s assets as those assets were “low growth” prior to COVID-19, while Unilever had “limited expertise” in the categories oral care and over-the-counter medications. He added that cost synergies would be limited.

“Consumer health is not a high growth industry as some have made it to be. At 4% industry growth, it’s better than food, personal care and home care, but there are better options,” said Monteyne, adding that “Unilever and the industry This also has a bad track record on such large deals.”

Analysts at RBC concur. Indeed, on Sunday they even wrote a report on the potential deal calling it “Please Don’t.”

In another note published Monday, RBC’s James Edwardes Jones and Emma Letheren wrote that Unilever was wrong to think GSK’s consumer healthcare business would be a strong strategic fit. .

Indeed, the bank believes that there is little overlap between the two businesses of vitamins, minerals and dietary supplements of the two British corporations and thinks that Unilever will have difficulty in supplying over-the-counter medicines to India. India, China and America.

They write: “The clinical and medical characteristics of the GSK Consumer Health category mean much more restrictive regulation than the rest of Unilever’s business. “This makes it much more difficult to bring brands into new markets.”

RBC added that their overall view of Unilever is that it risks “under-distribution due to non-investment”.

Over the weekend, the British press criticized the giant corporation and its executives Alan Jope.

The British business press also wondered why Jope did not liquidate the company’s low-growth food business. Although Unilever has sold less tea and expanded its business, analysts and shareholders perceive the need to be faster to dispose of underperforming assets and move into the high-end with major brands. hotter product categories such as health, beauty and wellness.

Unilever is well aware of this and on Monday said it would expand its presence “physically” in the health, beauty and hygiene categories, which have “sustainable market growth rates” higher and has a significant opportunity to drive growth through investment and innovation. In an apparent attempt to reassure the market, Unilever said it would leverage its “strong presence” in emerging markets to drive that growth and also pursue a “quick divestment”. ” for brands and businesses with lower growth rates.

“Unilever is committed to strict financial discipline to ensure that acquisitions create value for shareholders. The company benefits from a strong balance sheet and cash flow and remains committed to maintaining its A-band credit rating. Following any acquisition, the company will aim to return to current levels in the short to medium term. ”

Meanwhile, GSK persisted with its strategy.

It says the consumer healthcare business has annual sales of £9.6 billion by 2021^, and “an exceptional portfolio of world-leading brands; global scale with footprint and distribution capabilities serving more than 100 markets; strong branding, innovation and digital capabilities, and a unique proposition that combines credible science with human understanding. ”

GSK added that the business is well positioned to grow sustainably ahead of its categories in the coming years.

“The fundamentals for the £150 billion consumer healthcare sector are strong, reflecting a growing focus on health and wellness, significant demand from an aging and affluent population. emerging middle class, and unmet consumer needs.

“The GSK Board of Directors is confident that the Consumer Healthcare business can deliver sustainable organic sales growth year-over-year in the range of 4 to 6% (at zero exchange rates). change) in the medium term,” the company said.