Unilever & GlaxoSmithKline battle over £50bn Consumer Healthcare business

Unilever has announced it will focus growing its presence in Health, Beauty and Hygiene. The group plans to make major acquisitions in line with this initiative as it ramps up disposals of lower-growth parts of the business.

The group’s identified GlaxoSmithKline’s Consumer Healthcare business as a good strategic fit, but Unilever’s most recent £50bn offer to buy the business was rejected.

Later this month management will announce a “major initiative” following the review of the current organisational structure that it expects will accelerate growth within its existing business.

The shares fell 6.2% following the announcement.

Laura Hoy, Equity Analyst at Hargreaves Lansdown provides this analysis on the situation: “Unilever’s emerged as a keen suitor for GlaxoSmithKline’s Consumer Healthcare business, but so far the Domestos and Magnum maker’s been given the cold shoulder. Glaxo’s planning to spin off the consumer arm in a bid to sharpen its Pharmaceuticals and Vaccines business, but it seems the move is about more than just trimming the fat.

“The sharp uptick in inflation means consumer goods giants with recognisable brands are in a strong position if consumers start to pare back spending. That’s likely part of the reason Glaxo’s forecast organic sales growth of between 4% and 6% when the consumer business goes it alone. Add to that proposed cost savings plans and the premium to be paid for the cost synergies that come along with a merge, and Glaxo thinks its healthcare business is worth a lot more than the £50bn Unilever was prepared to offer.

“Based on Unilever’s new strategic direction, which includes increased focus on growth in the Health, Beauty and Hygiene segments, there could be another offer in the pipeline. The group says it will pounce on acquisition opportunities within the space, and they don’t get much more appealing than this one. With Unilever’s Tea business expected to bring in upwards pf £4bn when it’s sold later this year, management might have the firepower to sweeten the deal. Glaxo’s healthcare business comes with a hefty debt pile, though, which could keep a lid on the price Unilever—or any other suitors—are willing to pay.”