Unilever’s rebuffed £50bn takeover offer for GSK’s consumer healthcare venture, which owns the Panadol and Nicorette brands, represents only a modest premium to its current value, according to some leading analysts, suggesting the drugmaker is right to hold out for a higher offer.
GSK said on Saturday that it had rejected three bids from Unilever, the consumer goods giant behind brands including Marmite and Lipton tea. The latest offer, made on 20 December, comprised £41.7bn in cash and £8.3bn in Unilever shares.
Britain’s second-biggest drugmaker said the proposals “fundamentally undervalued” the consumer business and its future prospects, and that it remains committed to separate the business from its medical arm and float it on the London Stock Exchange. Analysts have valued it at £45bn, with some estimates as high as £48bn, but takeover offers typically come with an acquisition premium.
GSK on Saturday released new organic sales growth forecasts for consumer health of 4% to 6% in the medium term, higher than the 3% to 3.5% analysts have pencilled in. It said it was pushing on with plans for a stock market flotation this summer.
Jefferies analyst Peter Welford said: “A £50bn bid reflects a modest 10% acquisition premium, with Unilever gaining control of a leading global consumer healthcare business and likely able to realise significant synergies. We acknowledge post-spin there will be standalone costs that depress returns, but also greater freedom to allocate capital which could boost future growth prospects.”
On the other hand, he noted that a £50bn-plus sale would leave GSK £34bn-plus cash for its 68% stake. “In theory this war chest provides ample strategic optionality to rebuild a pipeline and invest in focus therapeutic areas, but at least initially we expect many shareholders would fear a large acquisition and the risk of inferior returns.”
GSK has been under pressure from the activist investor Elliott Management, a New York hedge fund, to pursue a sale of the consumer business. Elliott took a sizeable stake in GSK last spring to clamour for change at the pharmaceutical company ahead of its planned split, including demanding that the chief executive, Emma Walmsley, reapply for her job. GSK has firmly resisted the hedge fund’s demands.
Unilever issued a statement on Saturday that left the door open for a further approach. “GSK Consumer Healthcare is a leader in the attractive consumer health space and would be a strong strategic fit as Unilever continues to re-shape its portfolio.”
Russ Mould, investment research director at the stockbroker AJ Bell, said: “GlaxoSmithKline has a plan of action that it has clearly outlined for some time, so I doubt it feels under pressure to consummate a deal. The fact that management feel capable of waiting for a better price suggests as such, although they do have an obligation to shareholders to get the best possible price that they can, either via the spin-off or sale.”