Executives at GlaxoSmithKline PLC (GSK, Financial) confirmed on Saturday that they had received three unsolicited, conditional and non-binding proposals from Unilever PLC to acquire the GalxoSmithKline Consumer Healthcare business - and turned them all down because “they fundamentally undervalued the Consumer Healthcare business and its future prospects.”
The latest proposal received on Dec. 20, 2021 was for a total acquisition value of £50 billion British Pounts ($68 billion) comprising £41.7 billion in cash and £8.3 billion in Unilever shares, the company said in a press release. The consumer health care business is a Joint Venture between GalxoSmithKline and Pfizer (PFE, Financial), with GalxoSmithKline holding a majority controlling interest of 68% to Pfizer's 32%.
“The Board of GSK is strongly focused on maximizing value for GSK shareholders and has carefully evaluated each Unilever proposal,” the company said. In doing so, the Board and its advisers assessed the proposals relative to the financial planning assessments completed to support the proposed demerger of the business in mid-2022.
The Consumer Healthcare business “has been transformed since 2014 through the successful integrations of GSK’s business with the Novartis consumer health portfolio in 2015 and the Pfizer portfolio in 2019,” GalxoSmithKline said in the statement. "Importantly, this transformation has also provided a platform to scale and optimize many aspects of the Consumer Healthcare business including divesting lower growth brands, introducing a new R&D/innovation model, optimizing the supply chain and manufacturing network, alongside continued investment in new digital, data and analytic platforms and capabilities.”
This has resulted in the creation of a leading global consumer health care business with annual sales of £9.6 billion in 2021. "The business has an exceptional portfolio of world-class, category-leading brands; global scale with footprint and distribution capability to serve more than 100 markets; strong brand building, innovation and digital capabilities; and offers a unique proposition that combines trusted science with human understanding. The business is led by a highly skilled management team with deep experience in consumer healthcare and FMCG with strong commitment to delivery on its purpose and growth ambitions.”
The Board of GalxoSmithKline says it remains “focused on executing its proposed demerger of the Consumer Healthcare business, to create a new independent global category-leading consumer company which, subject to approval from shareholders, is on track to be achieved in mid-2022.”
Citing a Bloomberg article, Zacks Equity Research noted that analysts are valuing GalxoSmithKline's consumer health care business at as much as £48 billion “and it is believed that any successful acquisition offer from Unilever should pay a significant premium over this valuation to attract Glaxo.”
The company remains on track with its plan to spin off the business into a standalone company in mid-2022, Zacks added. “The company has been consistently under pressure from its investors over the past few years to separate its core pharmaceutical business and the consumer business into separate entities to drive shareholders’ wealth. A better acquisition offer from Unilever or another company may result in a sale instead of a spin-off. In the trailing 12 months, Glaxo’s shares have risen 18.2% compared with the industry’s 14.8% increase.”
Britain’s second-biggest drugmaker said the proposals “fundamentally undervalued” the consumer business and its future prospects, and that it remains committed to separate the business from its medical arm and float it on the London Stock Exchange, reported The Guardian. Analysts have valued it at £45 billion, with some estimates as high as £48 billion, but takeover offers typically come with an acquisition premium.
On Saturday, GalxoSmithKline released new organic sales growth forecasts for consumer health care of 4% to 6% in the medium term, higher than the 3% to 3.5% analysts have penciled in. It said it was pushing on with plans for a stock market flotation this summer.
Jefferies analyst Peter Welford told The Guardian, “A £50bn bid reflects a modest 10% acquisition premium, with Unilever gaining control of a leading global consumer healthcare business and likely able to realize significant synergies. We acknowledge post-spin there will be standalone costs that depress returns, but also greater freedom to allocate capital which could boost future growth prospects.”
