Unilever to expand health and beauty business after failed GSK approach

Unilever has pledged to grow its health, beauty and hygiene business as investors dumped its shares after its failed £50bn approach for GlaxoSmithKline’s consumer products arm.

GSK rejected three Unilever bids for the consumer products arm it is seeking to spin off, the last of which was worth £50bn. The pharmaceutical company on Saturday said that the offer “fundamentally undervalued” the business, which owns brands including Panadol pain relief and Sensodyne toothpaste.

Unilever shares dropped by 6% on Monday morning, making it the biggest faller on the FTSE 100. GSK shares rose by 5%, making it the top riser among the UK’s blue-chip companies as investors appeared to bet that a higher bid would materialise.

Unilever, the owner of brands ranging from Dove soap to Marmite, has been under pressure in recent months under the leadership of the chief executive, Alan Jope. Its share price was almost a quarter below its record 2019 high before the bids were revealed.

GSK plans to demerge the consumer products business by the middle of the year, and the former Tesco boss Sir Dave Lewis has been lined up to chair it. Some analysts have estimated GSK may be looking for as much as £60bn for a takeover.

The GSK consumer business would be a “strong strategic fit”, Unilever said on Monday. Unilever highlighted GSK’s oral care brands, which also include Aquafresh toothpaste, as well as its vitamins, minerals and supplements brands such as Centrum and over-the-counter medicines.

Unilever outlined a strategy update focused on investment in “sustainable market growth” and using its already strong presence in emerging markets, which are expected to use more consumer products as citizens become richer.

“The management and board of Unilever are committed to accelerating the company’s growth and repositioning the portfolio into higher growth categories,” the company said, adding that it would sell off lower-growth businesses to fund the purchases. Later this month it plans to update investors on a new operating structure that it hopes will improve its performance.

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Unilever also tried to forestall concerns that acquisitions would force it to take on more debt, saying that it would return to current levels of debt relative to its size “over the short to medium term”.

Maryam Ali, an analyst at Creditsights, a debt rating agency, said in a note to clients that she could see Unilever’s rationale for the GSK consumer products bid, and said that its focus on consumer health was unsurprising given recent acquisitions.

“Ever since the aborted Kraft-Heinz takeover attempt in 2017, it always seemed like a matter of ‘when’ rather than ‘if’ that the company would carry out a big deal of its own to protect its long-term future,” Ali wrote.


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