(Bloomberg) – Alan Job, CEO of Unilever PLC, is facing pressure to come up with a new strategy after Dow Soap forced its owner out of the bidding for GlaxoSmithKline Plc’s consumer product segment due to investor disagreement.
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Unilever on Wednesday dropped 50 50 billion ($ 68 billion) in trades covering brands such as Sensodine toothpaste and Advil painkiller, as Unilever’s share price plummeted as the UK pharmaceutical maker rejected its approaches.
The general failure came after analysts pleaded with Unilever not to proceed and a major shareholder management said it had “lost the plot”, failing to acquire Kraft Haynes Cove in 2017 for $ 143 billion. That failure sparked radical changes at Unilever, consolidating its headquarters in the UK, dismantling the complex Anglo-Dutch architecture and pursuing a more radical acquisition strategy that failed in its first major test.
The deal for Glaxo brands would have been Unilever’s largest acquisition, and the company’s pioneer in focusing on consumer health care. Job set that ambition locally after moving to London in 2020, which would facilitate major acquisitions and disposals.
Unilever shares extended the relief rally on Thursday, rising 1.9% in early London trading. GlaxoSmithKline’s stock fell 1.4%.
Earlier this week, the Unilever GlaxoSmithKline division said it was a “strong strategic fit” but would explore other acquisitions in consumer health. The company claims to adhere to financial discipline and will not overpay.
Health, Beauty
In that statement, Job announced Unilever’s restructuring, which focuses on its health, beauty and health functions, predicts major acquisitions, and suggests that it may engage in its dietary activities.
In recent years, that hand of the company has been affected by inflationary pressures in emerging markets, which has slowed down overall growth for Unilever compared to the Nestle SA, which is gaining momentum from its successful pet food business.
However, Unilever’s share price plummeted as investors questioned the reason for the Glaxo deal. Analysts wrote notes entitled “Please Do Not” and described it as “the worst deal ever.” Rating agencies have also warned that acquiring Unilever’s credit rating could lower its rating.
Job has already faced criticism from some shareholders because of his focus on sustainability in the face of weakening stock prices.
‘Damage limit’
Bernstein’s analyst Bruno Montaine said the deal was not “good news” but described the recent move as a “damage limit” attempt.
Unilever “tries to control the story,” he said in an email. “By rejecting the high bid, it looks like they are ending the offer here. It’s not obvious. Investors stopped the bid by the stock price and the feedback they gave.
The move to abandon Unilever’s initiative also raises questions about the strategy of Glaxo CEO Emma Wallsley, who said she wants plans to eliminate the consumer segment. Pharmaceutical makers have said that new bidders may emerge after Elliott Investment Management pushed LP shareholders to increase their returns.
In response to Unilever’s earlier concerns, Glaxo said it expects consumer unit sales to grow 4% to 6% faster over the medium term than the market rate. This rating raises the bar for any other prospective buyer, amid expectations that a successful forecast will require a top-up of $ 10 billion or more. Glaxo will lay the groundwork for such growth at an investor meeting in late February.
Other bidders?
“We are focused on increasing the value of shareholders and are very optimistic about the future of the business and its potential,” a Glaxo spokesman said. “The consumer health care business has an exceptional portfolio and provides a highly attractive financial profile that supports investment and future returns for current and future shareholders.”
The pursuit of this unit by Unilever, Procter & Gamble Co. Or sparked speculation about other shooters coming out, including Nestle SA.
When analysts pressed P&G on Wednesday about its acquisition strategy, CEO John Moller said he liked the current portfolio and would be “very disciplined” in any deal. The two divisions, skin care and personal hygiene, consider P&G to be a particular focus area for potential deals, but he said in a call that “we do not need a large M&A to deliver on financial goals.”
(Updates with Unilever and Glaxo shares in the fifth column)
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