Unilever chief executive Alan Jope faces growing pressure to deliver a new strategy after investor dissent forced the Dove soap owner to walk away from a bid for GlaxoSmithKline 's consumer products division.
Unilever on Wednesday abandoned its £50 billion (€60 billion) pursuit of a business that includes brands like Sensodyne toothpaste and Advil painkiller, after the UK drugmaker rejected its approaches and Unilever’s share price plunged.
The very public defeat, which came after analysts implored Unilever not to proceed and a big shareholder said management had “lost the plot,” was a flashback to Kraft Heinz’s failed bid to acquire the company in 2017 for $143 billion. That debacle prompted radical changes at Unilever, including consolidating its headquarters in the UK, ditching a cumbersome Anglo-Dutch structure, and adopting a more aggressive acquisition strategy that’s failed in its first big test.
A deal for the Glaxo brands would've been Unilever's largest ever takeover and was intended to anchor the company's pivot to focus on consumer healthcare. Mr Jope set out that ambition internally after the shift to London in 2020, which was meant to facilitate major acquisitions and disposals.
Earlier this week, Unilever said the Glaxo division was a “strong strategic fit”, but that it would explore other takeover opportunities in consumer health. The company also said it would maintain financial discipline and wouldn’t overpay.
Revamp
In that statement, Mr Jope also announced a revamp of Unilever that would refocus around its health, beauty and hygiene operations, predicated on major acquisitions, and suggesting divestitures may involve its food operations.
In recent years, that arm of the company has been wounded by inflationary pressures in emerging markets that have slowed Unilever's overall growth compared with archrival Nestle, which gets a boost from its successful pet food business.
Still, Unilever’s share price fell sharply as investors questioned the rationale for the Glaxo deal. Analysts wrote notes titled “Please Don’t” and described it as a “very bad deal”. Ratings agencies also warned about a possible downgrade of Unilever’s credit rating if it went ahead with a takeover.
Mr Jope was already facing criticism from some shareholders for a focus on sustainability as the company’s stock price languished.
It's "good news" that the deal won't happen, Bernstein analyst Bruno Monteyne said, though he described the latest move as an effort at "damage limitation".
Unilever is “trying to control the narrative,” he said in an email. “By ruling out a higher bid, it looks like they end the offer here. That is obviously not the case. Investors stopped the bid through the share price and the feedback they gave.”
Unilever's move to abandon the pursuit also raises questions over the strategy of Glaxo CEO Emma Walmsley, who has said she favours plans to spin off the consumer division. The drugmaker has said it would consider any bids, after Elliott Investment Management pushed her to boost shareholder returns, and new bidders could emerge.
In response to Unilever’s earlier interest, Glaxo had said it expects the consumer unit to see sales grow 4 per cent to 6 per cent in the medium term, faster than the market rate. The estimate raises the bar for any other prospective buyers, amid expectations that a successful overture could require a top-up of $10 billion or so. Glaxo will set out the rationale for such growth at an investor meeting at the end of February.
Other bidders?
“We are strongly focused on maximizing shareholder value and are very confident in the future of the business and its potential,” a Glaxo spokesperson said. “The consumer healthcare business has an exceptional portfolio and offers existing and prospective shareholders a highly attractive financial profile supporting investment and future returns.”
Unilever's pursuit of the unit had sparked speculation about other suitors emerging, including Procter and Gamble or Nestle.
When analysts pressed P&G about its acquisition strategy on Wednesday, chief executive Jon Moeller said he likes the current portfolio and will be "very disciplined" on any deals. Skin care and personal healthcare are the two categories that P&G considers particular focus areas for potential deals, he said on a call, but "we don't need large M&A to deliver" on financial targets. – Bloomberg
