Unilever faces growing investor backlash over bid for GSK’s consumer healthcare unit

Unilever is facing growing investor backlash against its £50bn bid for GSK’s consumer healthcare unit as its share price tumbles to its lowest level in nearly five years.

One of Unilever’s top 20 shareholders told the Financial Times: “I am against the deal and would vote against it.”

A top 15 investor said: “Unilever management has a lot to prove” to show investors that the proposed acquisition is “not a sign of desperation”.

“I need a lot of conviction on how and why they think they can justify it, fund it and use it to create shareholder value.”

Unilever’s share price initially fell 7% on Monday after news of its bids for GSK’s consumer business were announced over the weekend. GSK’s stock rose about 4%.

GSK and Pfizer, which has a 32% stake in the consumer healthcare unit, are expecting an improved offer of at least £60bn.

Alan Jope, chief executive of Unilever, would not say how much the company was willing to bid.

“Rest assured that Unilever will not overprice any asset, especially in the context where GSK consumer healthcare is a very attractive option in consumer healthcare. But it is not the only option,” a- he declared.

Johnson & Johnson, the world’s largest healthcare company, is also considering splitting off its consumer division.

Unilever defended its move for the GSK unit, saying the business, which includes brands such as Aquafresh toothpaste and Panadol painkillers, was a “strong strategic fit”.

“The acquisition would create scale and a platform for growth for the combined portfolio in the United States, China and India, with new opportunities in other emerging markets,” he said.

GSK said on Saturday that Unilever’s £50bn bid “fundamentally undervalues” the business it aims to build later this year.

Some GSK shareholders were also skeptical. Royal London Asset Management, one of GSK’s top 25 shareholders, said: “We support GSK’s board in rejecting this offer which, compared to a spin-off, is a less attractive outcome.”

Richard Buxton of Jupiter Capital Management, one of GSK’s top 30 shareholders, said on Sunday there was no price at which he should sell to Unilever. “The idea of ​​letting Unilever’s goons run it is laughable.”

Jope responded Monday saying he “wouldn’t indulge in name-calling.”

The Unilever chief said the leak of the deal over the weekend came without context and stressed it would come with divestments in low-growth areas. But he did not specify which businesses the company would sell.

Jope said Unilever would maintain its “financial discipline”, including maintaining a Band A credit rating and planning for rapid deleveraging over three to four years.

People familiar with the situation said the group still hoped to strike a deal with GSK.

Jope, who has led Unilever since early 2019, is under pressure to improve a performance – and share price – that has lagged rivals.

The FTSE 100 company has faced growing investor dissatisfaction with its strategy to drive growth, including an attack from top 10 shareholder Terry Smith last week.

Unilever said it would roll out a “major initiative to improve our performance” this month, including changes to its structure.

Consumer goods analysts have expressed reservations about the possible acquisition of GSK, as well as the debt it would impose on Unilever.

James Edwardes-Jones of RBC Capital Markets said: “We see little justification for such a deal strategically, operationally or financially. Even seriously considering such an offer raises questions in our minds about management’s confidence in the ongoing business.

Bruno Monteyne, an analyst at Bernstein, said the deal would result in “£10bn of shareholder value destruction”. He added that it was “just flabbergasted” that Unilever management was considering the offer and said shareholders saw it as a “desperate measure”.

Jefferies analyst Martin Deboo said “early investor feedback on the deal over the weekend was almost uniformly negative,” reflecting low confidence in Unilever’s management and the potential for the acquisition. to stimulate growth, as well as concerns about debt levels.

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