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The pigeon soap manufacturer Unilever signals the hunt for the GSK consumer arm; shares are falling

  • Unilever shares fall above 8%, GSK rises
  • Unilever signals that they will pursue an agreement on the GSK device
  • Says committed to 'strict financial discipline'

January 17 (Reuters) - Unilever (ULVR.L) signaled on Monday that they would pursue a deal for GSK's (GSK.L) consumer health department, calling it a "strong strategic fit", but its shares fell more than 8%, highlighting investors' doubts about their £ 50bn ($ 68.4bn) offer.

GlaxoSmithKline confirmed over the weekend that they had rejected three bids from soap maker Dove and Lifebuoy for the company, which is home to brands such as Sensodyne toothpaste, Emergen-C vitamin supplements and Panadol painkillers.

GSK, led by Emma Walmsley, has hired Goldman Sachs (GS.N) and Citigroup (CN) to review Unilever's approach, but it will not participate in negotiations unless Unilever looks at its offer, sources familiar with the matter said.

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GSK's shares jumped 6% to their highest level since May 2020. It said on Saturday that Unilever's proposal "fundamentally underestimated" the consumer business, adding that they would stick to its plan to list the division this year. Read more

"Initial feedback on investors' trading over the weekend has been almost uniformly negative," Jefferies analysts said in a note. Others noted that Unilever's share price decline indicated a lack of confidence in management and concern over the price.

However, the Marmite cold cuts manufacturer defended the bid for the GSK consumer business, in which the American pharmaceutical company Pfizer (PFE.N) owns 32% of the shares.

"The acquisition will create scale and a growth platform for the combined portfolio in the US, China and India, with additional opportunities in other emerging markets," said Unilever, pointing to synergies in the oral care and vitamin supplement industry.

GSK and Pfizer would open negotiations with Unilever chief Alan Jope if the consumer goods giant was ready to improve its bid to more than £ 60 billion, said a source familiar with Pfizer's strategy.

The source called the company a "legitimate independent candidate", adding that its market value could rise to nearly $ 100 billion once the company was spun off and listed.

"Right now there is more value in a spin-off, but if Unilever is ready to go north of £ 60 billion, a dialogue can start," he said.

GSK declined to comment, and Pfizer did not immediately respond to a request for comment on the fate of GSK's consumer business.

PERFORMANCE

GSK made plans for a separate listing of the consumer department in June last year, following pressure from investors to explore an upheaval of the company and focus on its pharmaceutical business.

A Unilever acquisition of the consumer division would be one of the largest ever on the London market and one of the largest deals globally since the start of the COVID-19 pandemic.

It would also boost Unilever's growth strategy, as management has been under pressure to reverse the company's sick share price and cope with high costs and small margins.

However, some analysts have expressed doubts about Unilever's ability to sweeten its offer to GSK.

"Given the loud investor concerns and Unilever's stock price reaction this morning, this may prevent a higher bid from becoming a reality," said Chris Beckett, head of stock analysis at Quilter Cheviot.

Reports of buying interest in GSK's consumer arm, including from private equity players, have been circulating for some time. Read more

"It's a little surprising that (GSK and Pfizer) have not ripped off Unilever's arm for £ 50bn, as it's a decent price where the only question is whether it's the right one," said CMC Markets analyst Michael Hewson in a Note.

"It may be for GlaxoSmithKline and Pfizer, but there is a feeling that for Unilever it may well turn out to be too high a price," Hewson added.

Unilever, which is set to announce an initiative later this month to strengthen its business, said Monday it was committed to "strict financial discipline" for any acquisitions, adding that such agreements would be accompanied by divestments of companies or brands with lower margin.

($ 1 = £ 0.7312)

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Reporting by Pushkala Aripaka and Siddharth Cavale in Bengaluru, Keith Weir, Pamela Barbaglia, Carolyn Cohn and Simon Jessop in London and Ludwig Burger in Frankfurt; Edited by Shounak Dasgupta, Emelia Sithole-Matarise and Jane Merriman

Our standards: Thomson Reuters Trust Principles.

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