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* Unilever shares fall over 8%, GSK gains
* Unilever signals it would pursue deal for GSK unit
* Says committed to 'strict financial discipline'
(Adds analyst comment, background)
By Pushkala Aripaka, Keith Weir and Pamela Barbaglia
Jan 17 (Reuters) - Unilever signalled on Monday it
would pursue a deal for GSK's consumer healthcare arm,
calling it a "strong strategic fit", but its shares fell more
than 8%, highlighting investors' doubts about its
50-billion-pound ($68.4 billion) offer.
GlaxoSmithKline confirmed over the weekend that it had
rejected nL1N2TV079 three bids from the Dove and Lifebuoy soaps
maker for the business, which is home to brands such as
Sensodyne toothpaste, Emergen-C vitamin supplement and Panadol
painkiller.
GSK, led by 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 6% to their highest level since May
2020. It said on Saturday Unilever's proposal "fundamentally
undervalued" the consumer 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. Others noted Unilever's share price fall
indicated a lack of confidence in its management and concern
over the price.
The Marmite spread maker, 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.
GSK declined to comment and Pfizer did not immediately
respond to a request for comment on the fate of GSK's consumer
business.
EXECUTION
GSK laid out plans nL4N2R82AU for a separate listing of the
consumer arm in June last year, following pressure from
investors to explore a shake-up of the company and focus on its
pharmaceuticals business.
A Unilever buyout of the consumer division would be one of
the largest ever on the London market, and one of the biggest
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 turn around the company's
languishing stock price and cope with high costs and slim
margins.
However, some analysts have expressed doubts over Unilever's
ability to sweeten its offer to GSK.
"Given vocal investor concern of late and Unilever's share
price reaction this morning, this could prevent a higher offer
from materialising," said Chris Beckett, head of equity research
at Quilter Cheviot.
Reports of buying interest in GSK's consumer arm, including
from private equity players, have been doing the rounds for a
while.
"It's a little surprising that (GSK and Pfizer) 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.
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.
($1 = 0.7312 pounds)
(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; Editing by
Shounak Dasgupta, Emelia Sithole-Matarise and Jane Merriman)
