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Unilever shares hit as GSK says £50bn bid is 'fundamentally undervalued'

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·Business Reporter, Yahoo Finance UK
·3 min read
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Unilever shares hit as GSK says £50bn bid is 'fundamentally undervalued'
Unilever vowed to restructure its business as it weighs up a higher bid for the unit. It believes GSK will be a 'strong strategic fit' with its business. Photo: Piroschka van de Wouw/Reuters

Unilever (ULVR.L) shares slumped 6.5% on Monday after GlaxoSmithKline (GSK.L) said its recent £50bn ($68bn) bid for its consumer healthcare business was “fundamentally undervalued”.

The pharmaceutical firm said its board unanimously concluded the offer was not in the best interests of shareholders, and that it was instead pushing ahead with the planned demerger of the unit.

“The board of GSK therefore remains focused on executing its proposed demerger of the consumer healthcare business, to create a new independent global category-leading consumer company which, subject to approval from shareholders, is on track to be achieved in mid-2022” GSK said.

It was the third offer GSK had rejected.

However, Unilever, which owns brands such as Dove, Vaseline, Cif and Lipton, defended the move, vowing to restructure its business as it weighs up a higher bid for the unit. It believes GSK will be a “strong strategic fit” with its business.

GSK’s consumer arm owns brands including Panadol and Advil painkillers, Sensodyne toothpaste, Tums digestive health products, and Nicorette nicotine replacement therapy.

Unilever tumbled on the back of the news on Monday. Chart: Yahoo Finance
Unilever tumbled on the back of the news on Monday. Chart: Yahoo Finance

“It looks as though a deal is very much still on the cards despite GSK rejecting three offers including the latest £50bn approach,” Victoria Scholar, head of investment at Interactive Investor, said.

“Unilever will have to raise its bid to somewhere around £55bn and move fast in order to avoid a bidding war from rival private equity buyers who are likely to be eyeing up counter offers.”

In a brief announcement, Unilever said it was “bringing forward a planned update” after the unsuccessful approach over the weekend.

Unilever said it will refocus on health, beauty and hygiene brands, selling off those with slower growth, meaning that the group may offload some of its food operations, including its Ben & Jerry's and Magnum ice cream brands.

However, analysts at Barclays (BARC.L) and Bernstein both downgraded their ratings on the stock, with the latter saying the deal was "very bad" for shareholders.

Read more: European stock markets open higher at the start of the week

In contrast, GSK shares rose 4.7% to the top of the FTSE on the back of the news amid speculation of a better offer.

Russ Mould, investment director at AJ Bell, said: “GlaxoSmithKline’s share price has jumped on the news as Unilever’s actions effectively fire the starting gun for a bid war for the consumer goods unit. Nestle (NESN.SW) could be interested, so too private equity.”

“Unilever looks to be bidding for the unit because it needs to inject some excitement into its business, having recently disappointed with sales and profit margins.

“This really is a Marmite situation for GlaxoSmithKline’s shareholders — they’re either hoping for a quick return now through a sale or better returns in the future through the planned demerger.”

Watch: Unilever to raise prices for its brands by 4%