As it considers making a higher offer for GlaxoSmithKline Plc’s consumer unit, Unilever Plc plans to sharpen its focus on health and hygiene and sell off slow-growth brands.
Unilever announced on Monday that it will restructure its business later this month. The owner of the Dove soap brand stated that it will refocus on its health, beauty, and hygiene operations, implying that divestitures may include its food operations, which include the Ben & Jerry’s and Magnum ice cream brands.
The strategy shift comes after Glaxo announced over the weekend that it had rejected three offers from the consumer-products company for a portfolio of brands that included Advil pain reliever and Sensodyne toothpaste, the most recent of which was worth 50 billion pounds ($68 billion).
Unilever shares fell as much as 6.6 percent in London. GlaxoSmithKline rose as much as 5.9 percent.
Alan Jope intends to make the most significant changes at Unilever since taking over as CEO three years ago. With analysts valuing Glaxo’s consumer business at up to 48 billion pounds, any successful offer from Unilever would almost certainly have to include a significant premium over that level, as well as a consideration of synergies, to entice Glaxo away from the spin-off plan, which is already in the works.
According to people familiar with the situation, Unilever has held discussions with banks about additional financing for a potential sweetened offer for the Glaxo unit.
Some financial institutions have discussed lending enough to secure a higher bid. According to the people who requested anonymity because they are not permitted to speak publicly, Unilever has not made a final decision on using the firepower.
Glaxo had planned to spin off its consumer brands, but shareholders such as Elliott Investment Management LP have urged CEO Emma Walmsley to consider a sale instead. The pharmaceutical company announced over the weekend that it will proceed with its plans to spin off the portfolio.
Glaxo’s board is open to proposals, but the most recent bid, received late last year, was not within the range the company would consider, according to the people. The pharma behemoth touted the unit’s growth prospects, which was formed by combining its consumer labels with those of Pfizer Inc., which retains a minority stake.
Unilever has made preparations that may facilitate the sale of its food business. The company streamlined itself into a single U.K.-based entity a little more than a year ago, abandoning its long-standing dual nationality. One reason for abandoning the cumbersome structure was to make it easier to complete transformative merger-and-acquisition transactions.
Jope assured the Dutch government at the time that any potential carveout of the company’s Foods and Refreshments division would occur in the Netherlands. This company generates 19 billion euros in revenue each year. Beauty and Personal Care, which Jope ran before being promoted to CEO, generates approximately 21 billion euros in annual sales, while Home Care generates 10.5 billion euros.
Unilever could sell the entire food division, which manufactures Knorr stock cubes, Marmite yeast spread, Colman’s and Maille mustards, Hellmann’s mayonnaise, and other products such as plant-based protein alternatives. Or it could sell its world-leading ice cream business, which includes brands such as Ben & Jerry’s, Magnum, and Solero, as well as high-end gelato labels Grom and Talenti. It generates approximately 7 billion euros in revenue per year.
A deal for Glaxo’s consumer unit would be one of the largest in the world in the previous year, and it would come at a time when merger and acquisition activity is at an all-time high.
Jope signaled shortly after taking the helm in 2019 that the company was ready to move beyond former CEO Paul Polman’s tame takeover strategy, which had focused on incremental deals in fast-growing sectors such as male grooming and home care.
Jope’s three-year tenure has been marred by distractions and missteps that have weighed on the company’s stock. Terry Smith, the founder of Fundsmith and one of Unilever’s top 15 shareholders, said last week that the company had “lost the plot” by focusing on enhancing its sustainability credentials at the expense of financial performance.
Glaxo has stated that it expects sales to increase by 4% to 6% in the medium term, which is faster than the growth rate of Unilever’s personal care division. With Jope’s interest now public, other bidders may emerge.
Unilever’s bid was “encouraging,” according to Giuseppe Bivona, co-founder of Bluebell Partners, an activist hedge fund with a stake in Glaxo. “It’s a fantastic asset, and there should be a lot of interest in it,” he says.
According to people familiar with the situation, Unilever is being advised by Deutsche Bank AG and Centerview Partners LLC. Bloomberg News reported in June that Glaxo is collaborating with Goldman Sachs Group Inc. and Citigroup Inc. on the listing and activist defense.
Unilever shares are trading at a lower level than they were in 2017 when Polman turned down a $143 billion unsolicited offer from Kraft Heinz Co.