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(Alliance News) - Unilever PLC's seemingly failed bid to buy the Consumer Healthcare business of drugmaker GlaxoSmithKline PLC shows how hard it is to reposition a large business along environmental, social and governance lines, credit ratings agency Scope said Wednesday.
The confirmation at the weekend that Unilever had made three bids to buy GSK Consumer Health came hot on the heels of criticism by fund manager Terry Smith saying that Unilever had become "obsessed" with sustainability, making it one of the worst performing stocks in the portfolio of his Fundsmith Equity fund. Smith said Unilever had "lost the plot".
On Saturday, Glaxo confirmed that it had received three bids from Unilever, the latest, on December 20, being for GBP50 billion in cash and shares. The business was formed in August 2019 as a joint venture with Pfizer Inc, which holds a 32% interest, while GSK holds the remaining 68%.
All three proposals were rejected by the Brentford-based pharmaceutical group, on the grounds that they undervalued the business and its future prospects. Glaxo said it remains focused on carrying on with the proposed demerger of GSK Consumer Healthcare and listing on the London Stock Exchange in mid-2022.
Glaxo has been under pressure to consider a sale instead, including from US hedge fund Elliott Management.
Unilever for its part, after the London market close on Wednesday, said it won't increase its offer above GBP50 billion.
Earlier, it had said its interest in GSK Consumer Health followed an extensive review of how the consumer products firm can reposition its portfolio into higher growth categories.
Unilever had said it considers Glaxo's Consumer Healthcare business to be an attractive acquisition target for the group, with 45% of the business being in Oral Care and Vitamins, Minerals & Supplements - categories in which Unilever already has a presence. The GSK business makes brands such as Aquafresh toothpaste and Panadol painkillers.
Unilever shareholders had been sceptical. Unilever shares closed down 0.6% at 3,495.55 pence on Wednesday, having dropped 6.3% on Monday. The stock is down 20% in the past 12 months.
Glaxo shares closed down 2.1% at 1,666.40p on Wednesday but are up 18% in the past year.
"Unilever's struggle to convince investors of the merits of its USD50 billion bid for GSK's consumer-healthcare business shows how difficult it can be to reshuffle product portfolios in the search for better sustainability-linked growth," Scope commented.
"From an ESG-investing perspective, companies like Unilever risk being penalised not necessarily for owning a portfolio of 'unhealthy foods' - Unilever is famous for its Hellman's mayonnaise brand – but rather failing to successfully launch healthier product variants in a timely fashion within the same brand or develop and expand into healthier brands and segments," said Eugenio Piliego, an analyst at Scope.
Piliego noted that over-the-counter treatments such as paracetamol and vitamin C are commoditised products that "will not improve Unilever's overall ESG standing and don't necessarily help Unilever grapple with consumers' changing tastes".
The Scope analyst noted that Switzerland's Nestle SA provides a better template for corporate restructuring with sustainability in mind. Nestle has been reshuffling its portfolio toward plant-based alternatives to existing products and away from environmentally damaging product lines such as bottled water.
In saying it won't raise its GSK Consumer Healthcare offer, Unilever said on Wednesday it is "committed to maintaining strict financial discipline to ensure that acquisitions create value for our shareholders".
It added: "Unilever also reiterates its commitment to continuing to improve the performance of its existing portfolio through its ongoing focus on operational excellence, its upcoming reorganisation and by rotating the portfolio to higher growth categories."
By Tom Waite; thomaslwaite@alliancenews.com
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