Unilever has ruled out increasing its £50bn offer for GlaxoSmithKline’s consumer health business, in a climbdown that comes after an intensifying investor backlash.
The consumer goods group had made three separate bids to acquire the business, which makes Aquafresh and Sensodyne toothpaste and Nurofen painkillers, and on Monday suggested it would continue the takeover attempt, calling it a “strong strategic fit”.
GSK had pushed for a higher price, releasing improved data on performance designed to extract a £60bn bid. But on Wednesday Unilever said: “We note the recently shared financial assumptions from the current owners of GSK Consumer Healthcare and have determined that it does not change our view on fundamental value. Accordingly, we will not increase our offer above £50bn.”
The backtracking by Britain’s biggest consumer goods group came as shareholders began to go public in opposition to the bid.
“There are a lot of ways for Unilever to enhance its position and this acquisition is not one of them,” said top-10 shareholder Bert Flossbach, founder and chief investment officer at German asset manager Flossbach von Storch.
“I would strongly oppose it if it comes to a vote,” Flossbach told the Financial Times, urging management to abandon its bid. “The smartest thing would be to walk away and say: ‘We’ve listened to our investors, we saw the share price reaction, and we don’t want to fight against our own investors.’”
Unilever’s share price sank sharply on Monday and Tuesday. A smaller fall on Wednesday brought its total decline this week to 11 per cent, wiping more than £10bn from the company’s market value.
After Wednesday’s announcement, which came after the London market closed, Unilever’s American Depositary Receipts rose 9 per cent.
“Investors stopped the bid through the share price and the feedback they gave,” said Bernstein analyst Bruno Monteyne, who had earlier predicted the deal would not pass a shareholder vote.
A call held by Bernstein with Unilever shareholders on Tuesday had been “a torrent of criticism along the lines of: ‘What on earth are they thinking?’” he added.
The Magnum ice-cream maker, which will report annual results on February 10, said it was “committed to maintaining strict financial discipline to ensure that acquisitions create value for our shareholders”.
GSK said it is “strongly focused on maximising shareholder value” and “very confident in the future of the business and its potential”. “The consumer healthcare business has an exceptional portfolio and offers existing and prospective shareholders a highly attractive financial profile,” a spokesman said.
The UK drugmaker is likely to try to proceed with a planned demerger of the business in the middle of this year, unless another bidder emerges.
It plans to set out the investment case for the new independent consumer health company on February 28. After that, it will begin the hunt for large cornerstone investors for the spun-off company.
An alternative bid appeared less likely after Procter & Gamble, the consumer goods conglomerate named by analysts as a potential buyer, on Wednesday effectively ruled out an approach, saying it did not need large M&A to deliver on its goals.
Private equity buyers have also eyed the asset but would struggle to raise a bid higher than the £50bn offered by Unilever given that a private equity consortium would not benefit from any potential synergies.
The end of Unilever’s pursuit leaves the consumer goods group under intense pressure, with investors unhappy not just about the aborted pursuit of the GSK division but also about a sustained period of underperformance.
Top-10 investor Terry Smith last week said Unilever had “lost the plot”, arguing before news of the bid broke that it was “obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business”.
Additional reporting by Matthew Rocco in New York