Hopeless Jope On The Ropes20 Jan 2022 02:06
Alan Jope is having a week to forget. On Saturday Unilever’s chief executive confirmed he wanted to buy GlaxoSmithKline’s consumer health unit, which makes Advil headache pills and
Sensodyne toothpaste. On Wednesday evening he ruled out raising his 50 billion pound (60 billion euro) offer, which the drug giant has rejected. That leaves the maker of Vaseline and
Domestos toilet cleaner in a worse position than it started.
Jope had little choice but to walk away https://www.unilever.com/news/press-and-media/press-releases/2022/unilever-update-19-january-2022 shareholders had knocked 11% off the company’s share price in two days. They should therefore be relieved that he will not overpay for a business which has historically delivered a much slower growth than the 4-6% rate GSK Chief Executive Emma
Walmsley thinks it can achieve.
Yet the company lacks an obvious Plan B. Jope could attempt a takeover of 45-billion-pound rival Reckitt Benckiser , which owns Nurofen painkillers and a fast-growing sexual health business. But shareholders may be reluctant to support a massive acquisition when Unilever’s existing businesses are underperforming. Underlying sales volumes across all its units were lower in the third quarter of 2021 than in the same period of 2020.
Unilever will reveal more details of its revamp when it reports full-year results next month. Conceptually the plan to rotate into faster-growing product categories such as health and hygiene makes sense. It’s also consistent with recent acquisitions in beauty and skincare and the sale of Unilever’s margarine and tea businesses.
But Jope’s fumbled lunge ... for the GSK unit has raised the question of whether Unilever is the best owner for brands like Hellmann’s mayonnaise and Magnum ice cream.
Jefferies analysts expect the food business to generate EBITDA of 4.3 billion euros next year. At the average multiple of rivals Kraft Heinz , Danone , and Nestlé that unit’s enterprise value would be almost 60 billion euros. The remaining business, expected to produce EBITDA of 8 billion euros, is worth 100 billion euros if valued at the average of Colgate-Palmolive and Henkel .
After knocking off debt, Unilever’s equity value would be 144 billion euros, or 33% more than its closing market value on
Tuesday.
Without a suitable target, Jope may resist such a radical breakup. But the risk is that an activist investor gives him little choice. Buying GSK’s consumer business looked a bit like having a baby to save a marriage. Unilever may now be heading for a divorce instead.
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