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Unilever’s CEO is missing out on Glaxos Advil, just as he may need it

(Bloomberg) - Unilever Plc CEO Alan Jope is facing increasing pressure to deliver a new strategy after investors' disagreement forced the Dove soap owner to walk away from a bid for GlaxoSmithKline Plc's consumer products division.

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Unilever on Wednesday abandoned its £ 50bn ($ 68bn) pursuit of a company that includes brands such as Sensodyne toothpaste and Advil painkillers after the UK drugmaker rejected their approaches and Unilever's share price plunged.

The actual public defeat, which came after analysts begged Unilever not to continue, and a major shareholder said management had "lost the plot", was a look back at Kraft Heinz Co.'s failed bid to acquire the company in 2017 for 143 billion dollars. This debacle prompted radical changes at Unilever, including the consolidation of its UK headquarters, the rejection of a cumbersome Anglo-Dutch structure and the adoption of a more aggressive acquisition strategy, which failed in its first major test.

An agreement on the Glaxo brands would have been Unilever's largest acquisition ever and aimed to anchor the company's hub to focus on consumer healthcare. Jope set that ambition internally after the move to London in 2020, which was to facilitate major acquisitions and divestments.

Earlier this week, Unilever said the Glaxo division was a "strong strategic fit", but that it would explore other consumer health takeover options. The company also said it would maintain financial discipline and would not pay too much.

Health and beauty

In this statement, Jope also announced a renewal of Unilever, which would focus on its health, beauty and hygiene activities, based on major acquisitions, and suggests that divestments may involve its food business.

In recent years, this part of the company has been hurt by inflationary pressures in the new markets, which has slowed Unilever's overall growth compared to arch-rival Nestle SA, which is getting a boost from its successful pet food business.

Nevertheless, Unilever's share price fell sharply as investors questioned the rationale for the Glaxo deal. Analysts wrote notes titled "Please do not" and described it as a "very bad deal." Rating agencies also warned of a possible downgrade of Unilever's credit rating if a takeover went ahead.

Jope was already met with criticism from some shareholders for a focus on sustainability as the company's share price plummeted.

'Damage limitation'

It is "good news" that the deal will not happen, Bernstein analyst Bruno Monteyne said, although he described the latest move as an attempt at "harm reduction."

Unilever "is trying to control the narrative," he said in an email. ‘By ruling out a higher bid, it looks like they are ending the bid here. That is obviously not the case. Investors stopped bidding through the stock price and the feedback they provided. "

Unilever's move to abandon the persecution also raises questions about the strategy of Glaxo's CEO Emma Walmsley, who has said she is in favor of plans to divest the consumer division. The drugmaker has said it would consider any bid after Elliott Investment Management LP pressured her to increase shareholder returns and new bidders could emerge.

In response to Unilever's past interest, Glaxo had said it expects the consumer unit to see sales grow 4% to 6% in the medium term, faster than market interest rates. The estimate raises the bar for all other potential buyers, amid expectations that a successful overture could require a top-up of $ 10 billion or so. Glaxo will explain the reasons for such growth at an investor meeting in late February.

Other bidders?

"We are strongly focused on maximizing shareholder value and are very confident in the future of the company and its potential," a Glaxo spokesman said. "The consumer health industry has a unique portfolio and offers existing and potential shareholders an extremely attractive financial profile that supports investment and future returns."

Unilever's pursuit of the device had sparked speculation about other suitors appearing, including Procter & Gamble Co. or Nestle SA.

When analysts pressured P&G about its acquisition strategy on Wednesday, CEO Jon Moeller said he likes the current portfolio and will be "very disciplined" on all trades. Skin care and personal health care are the two categories that P&G considers special focus areas for potential deals, he said in a call, but "we do not need big M&A to deliver" on financial goals.

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