Unilever to sell slow-growth brands as it weighs higher bid for GSK unit

Unilever plans to sharpen its focus on health and hygiene and sell off slow-growth brands as it weighs making a higher offer for GlaxoSmithKline’s consumer unit.

The Dove soap owner said Monday it will announce a revamp of its structure later this month. The company will refocus around its health, beauty and hygiene operations, suggesting divestitures may involve its food operations, which include the Ben & Jerry’s and Magnum ice cream brands.

The strategy shift comes after Glaxo said over the weekend that it rejected three offers from the consumer-products company for a bundle of brands including Advil painkiller and Sensodyne toothpaste, the latest of which was worth £50 billion($68 billion). 

Shares of Unilever fell as much as 7.3 per cent in London. Glaxo rose as much as 5.9 per cent.

“This is not about Unilever going from a £100-billion company to a £150-billion as there will be portfolio rotation,” CEO Alan Jope said on a call with reporters. “We are looking for competitive, responsible growth and don’t conflate this activity with a defensive mindset.”

Jope is aiming to make his biggest changes at Unilever since becoming CEO three years ago. The company will review food businesses with lower growth prospects, though has no immediate plans to divest the food and refreshment operations in their entirety, he said. Brands such as Hellmann’s mayonnaise and Ben & Jerry’s ice cream have good growth prospects, he added. Acquiring the Glaxo unit is not the only potential option for Unilever as it seeks to expand in health, according to Jope. The planned reorganisation will focus on efforts to seek new growth rather than cost-cutting, he said. 

With analysts valuing the Glaxo consumer business at as much as 48 billion pounds, any successful offer from Unilever would likely have to include a significant premium over that level, as well as a consideration of synergies, to tempt Glaxo away from the spin-off plan, which is already at an advanced stage.

Unilever has held talks with banks about additional financing for a potential sweetened offer for the Glaxo unit, according to people familiar with the matter. 

Some financial firms have discussed lending enough for a higher bid. Unilever hasn’t made a final decision on using the firepower, said the people.  Glaxo has been planning to spin off its consumer brands, but shareholders, including Elliott Investment Management have been pushing CEO Emma Walmsley to consider a sale instead.

‘Please don’t’: Analysts denounce $68-bn offer 

Analysts are denouncing Unilever’s £50 billion ($68 billion) offer for GlaxoSmithKline’s consumer health business in unusually strong words. 

In a barrage of Monday morning notes, analysts criticised Unilever for pursuing the deal, saying it doesn’t make sense and would come at an eye-watering valuation. Consumer health isn’t a high-growth industry and Unilever has a bad track record for big deals, said Bruno Monteyne at Bernstein. 

“We can’t imagine many things that would unnerve us more about Unilever than acquiring GSK consumer health,” wrote James Edwardes Jones at RBC Capital Markets in a note titled “Please Don’t.” 

Unilever has no overlap with two-thirds of Glaxo’s consumer health business and little experience in regulatory issues for medical and clinical products, he added. (Bloomberg)