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Glaxo (GSK) Rejects Unilever's $68B Bid for Consumer Business

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GlaxoSmithKline (GSK - Free Report) announced that it had received three unsolicited, conditional and non-binding proposals from British multinational consumer goods company, Unilever (UL - Free Report) for its Consumer business. However, Glaxo has rejected all three offers from Unilever, citing undervaluation of its consumer business.

The latest offer from Unilever was received by Glaxo on Dec 20, 2021 and was worth an aggregate amount of £50 billion or approximately $68 billion. The deal consisted of £41.7 billion in cash and £8.3 billion in Unilever shares.

Per a Bloomberg article, analysts are valuing Glaxo’s consumer 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.

Meanwhile, Glaxo remains on track with its plan to spin off the Consumer business into a standalone company in mid-2022. 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.

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Glaxo’s Consumer business is a joint venture with Pfizer (PFE - Free Report) , with the former owning the controlling stake at 68% and Pfizer holding the rest. The joint venture with Pfizer in 2019 put Glaxo’s Consumer business in the leader’s position. In 2015, Glaxo had formed a joint venture with Novartis (NVS - Free Report) by combining their consumer divisions.

Glaxo acquired Novartis’ stake in its joint consumer business in 2018 for almost $13 billion. Novartis had acquired Glaxo’s oncology products as part of the deal.

Glaxo believes that the worldwide consumer businesses will also have strong growth going forward with a rise in demand from an aging population and emerging middle class as they focus on health and wellness. Moreover, there is a sizable unmet need that will also drive the segment’s business. The Consumer Health business of Glaxo and Pfizer has delivered 4% annual growth over the past two years. Glaxo believes that the complete focus of the standalone unit, following a demerger, on consumer businesses following the demerger will put it on a path of superior sales growth. Glaxo expects its consumer business sales to grow by 4-6% organically, annually.

Glaxo also believes that its financial discipline will also boost the Consumer business unit’s operating margins going forward.

Based on these assumptions, Glaxo concluded that the $68 billion from Unilever is not reflecting the true potential of the business, which led to the rejection of the latest as well as earlier offers.

Per statement release by Unilever earlier today, it seems that it will continue to pursue the acquisition of Glaxo’s Consumer business despite failing thrice. Unilever believes that the addition of a consumer health business will complement its existing portfolio significantly and Glaxo’s business seems to be a strong strategic fit that will create scale and drive growth going forward. However, Unilever is yet to announce a sweetened deal. But given its persistent efforts to acquire the consumer business, it looks like a raised offer, if and when it materializes, would drive Glaxo shareholders’ wealth.

Zacks Rank

Glaxo currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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