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Unilever strategy under scrutiny after short-lived GSK skirmish

·3 min read
FILE PHOTO: Illustration of Unilever and GSK logo

By Pushkala Aripaka

(Reuters) -Unilever's strategy was under the investor microscope on Thursday after the consumer goods group effectively abandoned its 50 billion pound ($68 billion) pursuit of GlaxoSmithKline's consumer healthcare business.

Shares in the maker of brands such as Dove soap and Hellmann's mayonnaise ended down 0.7% after Unilever said on Wednesday that it would not raise a rejected offer.

It said its view on the value of the healthcare business had not changed despite GSK lifting financial forecasts for the unit, which is 32% owned by Pfizer and makes products such as Sensodyne toothpaste and Panadol painkillers.

Some analysts said Unilever's management, under pressure after a 31% drop in its share price since highs seen in late 2019, had been wise not to be drawn into upping their bid for a business that GSK has said it wants to spin off.

Barclays analysts called it a "smart move," saying that the decision "shows that whilst Unilever remains very keen on the asset, it is disciplined and will not do the deal at any price."

Others said the proposed mega-deal, which would have been one of the largest ever on the London market, had been unexpected and raised questions about Unilever's plan under Chief Executive Alan Jope for a more gradual shift away from lower-margin goods to health, beauty and hygiene products.

"From our discussions with shareholders and Unilever share price action, we believe there is a clear discontent with management and the board over the changed strategy and focus on transformative M&A," J.P. Morgan analysts said in a note.

Meanwhile, a group of investors said they had filed a fresh resolution urging Unilever to address a "crucial blind spot" and set ambitious targets to sell healthier foods.

Last week, Terry Smith, whose Fundsmith vehicle is Unilever's 13th biggest investor, lambasted the company for being "obsessed" with promoting its sustainability credentials at the expense of performance.

Smith took aim at Unilever again on Thursday, labelling the bid "a near death experience," and reiterating calls to focus on the operating performance of the existing business "before taking on any more challenges".

'CALLED THEIR BLUFF'

GSK, led by Chief Executive Emma Walmsley, has stuck to its plans to spin off the consumer healthcare unit despite previous pressure from activist investors to consider alternatives.

It had rejected three approaches from Unilever, and the final proposal made on Dec. 20 comprised 41.7 billion pounds in cash and 8.3 billion pounds in Unilever shares.

GSK's stock closed down 2% on Thursday.

"Unilever cannot increase any offer, not because the value of GSK's consumer (unit) would not warrant it, but simply because Unilever's investors expressed a no-confidence vote on Unilever's CEO doing any deal of this size," a GSK investor, who declined to be named, told Reuters.

Barclays analysts asked if GSK had overplayed its hand.

"By saying (GSK) sees £50 billion as fundamentally undervaluing the business, it now makes it very difficult to accept the £50 billion on the table whilst still saving face," they said.

"Some investors think that Glaxo may have overplayed their hand and Unilever has called their bluff."

Other large targets could be available for Unilever, with the consumer remedies industry, traditionally a part of the prescription drug sector, undergoing major transformation.

Johnson & Johnson in November unveiled plans to spin off its consumer health division, owner of Listerine and Baby Powder brands, to focus on pharmaceuticals and medical devices.

($1 = 0.7328 pounds)

(Reporting by Pushkala Aripaka and Siddharth Cavale in Bengaluru and Simon Jessop in London; Editing by Keith Weir, Shounak Dasgupta, Pravin Char and Alexander Smith)

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