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* Unilever shares fall 7%, GSK gains
* Unilever signals it would pursue deal for GSK unit
* Says committed to 'strict financial discipline'
(Adds source comments and background throughout)
By Pushkala Aripaka, Keith Weir and Pamela Barbaglia
Jan 17 (Reuters) - Unilever signalled on Monday it
would pursue a deal for GlaxoSmithKline's consumer
healthcare business, calling it a "strong strategic fit" but its
shares fell more than 7%, highlighting investors' doubts about
its 50-billion-pound ($68.4 billion) offer.
GSK confirmed over the weekend that it had rejected the Dove
soap maker's bid for the business, which is home to brands such
as Sensodyne toothpaste, Emergen-C vitamin supplement and
Panadol painkiller.
GSK, led by boss Emma Walmsley, has hired Goldman Sachs
and Citigroup to review Unilever's approach but it
will not engage in talks unless Unilever bumps up its offer,
sources familiar with the matter said.
GSK's shares jumped 5% in early trading to their highest
level since May 2020. GSK said on Saturday Unilever's proposal
"fundamentally undervalued" the business, adding that it would
stick to its plan of listing the division this year.
"Initial feedback on the deal from investors over the
weekend has been almost uniformly negative," Jefferies analysts
said in a note.
Unilever, however, defended the bid for the GSK consumer
business, in which U.S. drugs company Pfizer owns a 32%
stake.
"The acquisition would create scale and a growth platform
for the combined portfolio in the U.S., China and India, with
further opportunities in other emerging markets," Unilever said,
pointing to synergies in the oral care and vitamin supplements
business.
GSK and Pfizer would open negotiations with Unilever's boss
Alan Jope if the consumer goods giant was ready to improve its
bid to more than 60 billion pounds, a source familiar with
Pfizer's strategy said.
The source called the business a "legitimate standalone
candidate", adding its market value could rise to almost $100
billion once the business was spun out and listed.
"Right now there is more value in a spin-off but if Unilever
is ready to go north of 60 billion pounds then a dialogue could
start," he said.
Pfizer did not immediately respond to requests for comment
on the fate of GSK's consumer arm.
EXECUTION
A Unilever buyout would be one of the largest ever on the
London market and one of biggest deals globally since the start
of the pandemic.
It would boost Unilever's growth strategy as management has
been under pressure to turn around the company's languishing
stock price and cope with high costs and slim margins.
"It's a little surprising that they (GSK) haven't ripped
Unilever's arm off at £50bn, as it's a decent price, with the
only question being as to whether it's the right one," CMC
Markets analyst Michael Hewson said in a note.
"It might be for GlaxoSmithKline and Pfizer, however there
is a feeling that for Unilever it could well prove to be too
high a price," Hewson added.
Barclays analysts said the deal would be "very complex to
execute in normal times, let alone in the middle of a global
pandemic".
Unilever, which is set to announce an initiative later this
month to strengthen its business, said on Monday it was
committed to "strict financial discipline" for any acquisitions,
adding that such deals would be accompanied by the divestment of
lower margin businesses or brands.
GSK has been pursuing a separate listing of the consumer arm
following pressure from investors to explore a shake-up of the
company and focus on its pharmaceuticals business.
($1 = 0.7312 pounds)
(Reporting by Pushkala Aripaka and Siddharth Cavale in
Bengaluru, Keith Weir and Pamela Barbaglia in London and Ludwig
Burger in Frankfurt; Editing by Shounak Dasgupta, Emelia
Sithole-Matarise and Jane Merriman)
