The market has given a thumbs down to news that Unilever has bid for GlaxoSmithKline’s consumer goods division. The negative share price reaction probably reflects investors’ fears that Unilever is going to come back with a higher offer and potentially pay too much.
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 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, ” says Russ Mould, investment director at AJ Bell.
“GlaxoSmithKline chief executive Emma Walmsley would be delighted if someone came and paid top dollar for the unit, as she’s been under pressure from investors to deliver some good news for a long time.
“Some long-term GlaxoSmithKline investors may not want a sale, as they might have been looking forward to the consumer goods unit being demerged later this year.
“Demergers can be beneficial as management are able to run the business with more freedom, rather than simply being a division of a bigger company and having to follow group protocol. Therefore, the consumer goods arm could be worth a lot more in time, if allowed to forge its own path as a standalone business and potentially enjoy a stock market re-rating.
“Unilever says its priority is to materially expand operations in health, beauty and hygiene. Might it be willing to sell its food and refreshment arm which includes Magnum ice cream and Hellmann’s mayonnaise?
“It would certainly have to make some disposals if it were to buy the consumer goods arm from GlaxoSmithKline, but equally the food business is a cash cow so not something it would give up lightly.
“Even proposing the sale of the food arm could kick up a major fuss with shareholders who would probably see it as one of the core pillars of the group.”