Unilever Faces Investor Hurdle as Shadow of Mega Deals Looms
Unilever Faces Investor Hurdle as Shadow of Mega Deals Looms
(Bloomberg) -- Unilever Plc would need just over 50% of shareholders to back the purchase of GlaxoSmithKline’s consumer health unit, its biggest takeover attempt ever. Judging by the initial reaction, that might prove a tough bar to clear.
Some investors have already communicated their view by selling Unilever shares for the second day since news broke of its 50 billion-pound ($68 billion) approach to Glaxo, an offer the drugmaker rejected.
Shares in Unilever were down 3.45% at 4.23 p.m. in London Tuesday. As Alan Jope, who took over as chief executive three years ago, made the case for his ambitious strategy, both analysts and investors took a bearish view. Given the history of transformative consumer deals in the last few years, from Anheuser-Busch InBev SA’s 81 billion-pound takeover of SABMiller Plc to Reckitt Benckiser Group Plc’s $17.8 billion acquisition of Mead Johnson Nutrition Co., they have reason for caution.
The curse of the consumer deal varies from company to company. AB InBev’s debt load approached close to $100 billion after the acquisition of SABMiller and the company ultimately had to slash its dividend when it began struggling to repay the loans amid a slowdown in emerging markets. Reckitt’s acquisition of Mead Johnson was carried out just before demand for infant formula began to wane in China, which the company had earlier touted as one of its most promising prospects. Reckitt sold the infant nutrition business in China after about $10 billion worth of write-downs.
In an initial round of reactions to Unilever’s bids, analysts questioned the strategic rationale for the purchase and said it would come at too high a price. James Edwardes Jones at RBC Capital Markets titled his note on the transaction “Please Don’t.”
With Unilever’s plan to use stock as a currency for the deal, the 10% decline in the share price this week has made the purchase that much more expensive. And that’s before any sweetening of the offer price, which would be required to persuade Glaxo’s management to scrap plans for a spinoff of the business and to back the deal.
Unilever has held talks with banks about additional financing for a potential improved offer for the Glaxo unit, according to people familiar with the matter.
Glaxo’s management will no doubt take note of the lukewarm shareholder response at Unilever as the drugmaker weighs the merits of an uncertain merger versus a spinoff of the business. For now, though, Glaxo’s 3.3% share increase may provide embattled CEO Emma Walmsley some breathing room as she fends off pressure from activist shareholder Elliott Investment Management.
Deutsche Bank AG and Centerview Partners LLC are advising Unilever. Glaxo is working with Goldman Sachs Group Inc. and Citigroup Inc. on the listing and activist defense.
©2022 Bloomberg L.P.