Unilever PLC (UL, Financial) said on Wednesday that it will not raise its already rejected bid of 50 billion pounds ($68 billion) for GlaxoSmithKline PLC's (GSK, Financial) consumer health care business – and investors aren’t happy.
With the share price of the global consumer goods company down more than 30% since late 2019, the decision not to go higher for the business was probably a good one. For example, Barclays praised the move as "smart," adding that the decision "shows that whilst Unilever remains very keen on the asset, it is disciplined and will not do the deal at any price."
Critics thought the proposed deal unwise. Noted one JPMorgan analyst, “From our discussions with shareholders and Unilever share price action, we believe there is a clear discontent with management and the board over the changed strategy and focus on transformative M&A." Unilever’s share price was trading at $50.12 just after midday on Thursday, up 0.13%.
Some investors are making no secret of the fact that they are unhappy with what they perceive as the company’s lack of direction. Axios called the GlaxoSmithKline bid decision “a jarring U-turn from Unilever's position of just a few days ago, when it said it was undeterred by GSK's rejection of three takeover offers, and raises. One possibility is that Unilever thinks it's calling GSK's bluff, or that it has an alternate acquisition target in mind. The bottom line: Unilever must convince investors that it's not spinning its strategic wheels, as it tries to move deeper into health and beauty products and away from lower-margin items like food. The GSK bid suggested that CEO Alan Jope favored sudden, transformative change. Until he didn't.”
Indeed, Terry Smith of the Fundsmith Equity Fund – reportedly the 13th-largest investor in Unilever – tore into the company's management. He told the Financial Times, “Unilever seems to be laboring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.”
In a newsletter posted on his website Thursday morning titled "Unilever + GSK Consumer: A post mortem," Smith and Julian Roberts say that they are “pleased that the Unilever management listened and has seemingly ended the attempt to acquire GSK Consumer by refusing to up its bid for a fourth time.”
Unilever’s management, the pair continue, “seems to be playing what Warren Buffett (Trades, Portfolio) lampoons as ‘gin rummy’ management - like a player in the eponymous card game, throwing away their least promising card(s) each round in the hope they will turn over better ones… We believe the Unilever management – or someone else if they don’t want the job – should surely focus on getting the operating performance of the existing business to the level it should be before taking on any more challenges.”
Another group of Unilever investors revealed on Thursday they have submitted a resolution insisting that management repair what they termed a "crucial blind spot" in its overall strategy, and focused on healthy foods.
“The resolution by an 11-strong investor group with $215 billion in assets, including Candriam, Actiam and Greater Manchester Pension Fund, calls on Unilever to disclose the current proportion of sales linked to healthier products,” Reuters reported. “It also urges the company to set a target to 'significantly increase' that share by 2030, and publish an annual review of their progress.”
