Shares in Unilever recovered some of their recent lost ground today after the company announced last night that it would not be increasing its rejected £50bn bid for GSK’s Consumer Healthcare business.
Unilever had made three offers to GSK with the final proposal made on 28 December comprising £41.7bn in cash and £8.3bn in shares.
GSK rejected the bids saying they “fundamentally undervalued” the business and subsequently issued improved financial assumptions for the Consumer Healthcare unit, which is a joint venture with Pfizer. It wants to stick to its current plan of separating it from the company’s pharmaceuticals and vaccines operation by way of a demerger and listing later this year.
A report earlier this week suggested that GSK was looking to attract sovereign wealth funds as cornerstone investors in the listing to head off a “risky takeover” by Unilever.
Unilever said in a statement that it noted the recently shared financial assumptions by GSK but “determined that it does not change our view on fundamental value. Accordingly, we will not increase our offer above £50bn”.
The group added that it was committed to “maintaining strict financial discipline” to ensure that “acquisitions create value for our shareholders”.
A spokesperson for GSK responded by saying the group was strongly focused on maximising shareholder value and was confident in the future of the Consumer Healthcare business which is now projected to achieve annual organic sales growth of 4%-6% over the medium term.
They added: “The Consumer Healthcare business has an exceptional portfolio and offers existing and prospective shareholders a highly attractive financial profile supporting investment and future returns.”
Shares in GSK slid this morning on the assumption that Unilever has effectively ended its pursuit of the business.
Unilever’s decision not to raise its bid comes after analysts and investors widely criticised the offer, sending its share price plummeting on worries about the debt implications for the company.
“Investors stopped the bid through the share price and the feedback they gave,” said Bernstein analyst Bruno Monteyne, who had earlier predicted the deal would not pass a shareholder vote.
Reports this week had suggested that GSK and Pfizer would open negotiations with Unilever if an improved bid of more than £60bn was made.
The decision not to increase the bid is expected to raise questions about Unilever’s strategy under Chief Executive Officer Alan Jope and increase the pressure to improve its performance after several years of lacklustre growth. Earlier this week, Unilever had called the GSK business a good strategic fit as it tries to shift more towards a focus on health, beauty, and hygiene products.
The company plans to announce a “major initiative” to enhance its performance later this month, adding: “After a comprehensive review of our organisation structure, we intend to move away from our existing matrix to an operating model that will drive greater agility, improve category focus, and strengthen accountability.”
NAM Implications:
- Key moves for Unilever:
- Improve ROCE
- In turn driven by net margin
- And Capital turn
- So, some asset cuts/disposals, improved internal efficiencies, reductions in working capital.
- But above all, driving sales, hard…
- Rivals please note…
