In a statement GlaxoSmithKline said, it had rejected Unilever’s 50-billion-pound takeover offer for its consumer goods arm, saying it “fundamentally undervalued” the business and its future prospects and that it would stick to its plan of spinning off the unit.
A deal of this size would have been the biggest since 2020, the start of the pandemic.
It could also potentially transform Unilever into a formidable beauty and personal care company taking on the likes of Estee Lauder and L’Oreal; for GSK, it could bring much needed relief from investor pressure that has been building over the past year.
In a statement GSK said, it had received three bids from Unilever, the latest of which comprises of 41.7 billion pounds in cash and 8.3 billion pounds in Unilever shares; all three bids failed to reflect the intrinsic value of the business and its potential, said GSK.
“The Board of GSK therefore remains focused on executing its proposed demerger of the Consumer Healthcare business … on track to be achieved in mid-2022,” said GSK in a statement while adding that it was confident the business would beat global market growth rates in the medium term.
GSK plans on spinning out its consumer goods business and list it sometime in the middle of this year.
“There can be no certainty that any agreement will be reached,” said Brokerage Jefferies placing a valuation for the whole consumer unit at 45 billion pounds.
In the event if the deal goes through, GSK’s consumer health unit’s brands would likely be incorporated into Unilever’s Beauty and Personal Care business, its biggest by sales.
Alan Jope, Unilever’s CEO has come under pressure to turn around the company’s stock price as it struggles to compete in the face of high inflationary costs, especially in emerging markets, its biggest source of revenue.
Over the last 1 year, Unilever’s shares have fallen by 10% compared with P&G’s 18% rise and Reckitt’s 1.4% decline, despite a pandemic-driven boost in shopping for groceries and household goods that has benefited all three companies.
British fund manager Terry Smith, whose Fundsmith vehicle is a top-10 Unilever investor, this week criticized the group for promoting sustainability credentials at the expense of performance.
After being appointed as CEO in 2019, Jope has laid out a vision for Unilever called “brands with purpose”, a socially conscious strategy that would see the company focus investments and marketing on brands that “communicate a strong environmental or social purpose” even at the cost of profit.
“A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches),” said Smith.
Smith did not immediately respond to requests for comment.
Jope has kept to his promise of streamlining the company: Unilever has sold a majority of its Tea business, including Pukka Tea and PGTips to CVC Capital partners for $5 billion in 2021 and has been looking to offload a portfolio of slow growing beauty brands.
Investor activism has also reared its head at GSK.
In April 2021, U.S. activist hedge fund Elliott Management revealed a multi-billion pound stake in GSK, putting pressure on CEO Emma Walmsley to explore a shake-up of the company after it fell behind in the COVID-19 vaccine race.
Activist investor Bluebell Capital Partners, fresh off its success in ousting the CEO of Danone last year, also took a stake in GSK in September, making demands which includes asking Walmsley to re-apply for her job, citing a lack of scientific expertise.
If the deal with GSK goes through, it will mark Unilever’s second with the company after it bought its health food drinks business, including Horlicks, in India and other Asian markets for 3.3 billion euros in 2018.
The consumer remedies industry, which has traditionally been attached to the prescription drug sector, is also in a phase of major transformation as several pharma companies no longer see a benefit in a combination.