Unilever Sets Out Ambition to Expand in Health Products

Glaxo said Saturday that Unilever had made three proposals late last year, which it rejected on the basis that they undervalued the business and its future prospects. The latest proposal, received on Dec. 20, valued the business at £50 billion—equivalent to about $68.4 billion—and was made up of £41.7 billion in cash and £8.3 billion in shares, it said.

The unexpected approach for the business, which Glaxo has been preparing to spin off later this year, was widely questioned by analysts, with shares in Unilever falling more than 6% in early trading Monday.

In its announcement Monday, Unilever defended the rationale for such a deal, saying health, beauty and hygiene offer higher rates of growth thanks to the potential for innovation. The company also said it could benefit from its existing footprint in such categories in emerging markets like China and India.

Unilever said it had decided that big acquisitions to fulfill its strategic ambitions could be accompanied by the sale of lower-growth brands and businesses. For many analysts, that comment offers the clearest intention yet of the company’s plans to further de-emphasize food.

Although Unilever has sold food since its inception, with the company’s roots in butter and margarine dating back to the late 1800s, its food arm has grown more slowly than other businesses like beauty and personal care. Unilever for years has faced calls to spin off or sell the division, which houses brands including Ben & Jerry’s ice cream and Hellmann’s mayonnaise.

Other major consumer products companies such as Procter & Gamble Co. , Reckitt Benckiser Group PLC and Colgate-Palmolive Co. are mainly focused on businesses like personal care, home care and consumer health, while others like Nestlé SA have exposure to categories viewed as more promising, such as coffee and pet food.

Unilever in recent years has sold off big chunks of its food business, in 2018 selling its spreads unit for about $8 billion and in November striking a roughly $5 billion deal to sell the bulk of its tea business.

Still, analysts roundly criticized the approach for Glaxo’s consumer-healthcare business.

“We think this is a very bad deal for Unilever shareholders,” said Bernstein analyst Bruno Monteyne, adding that he thinks Unilever—already struggling to drive growth in its existing business—would struggle further to grow sales of the GSK consumer health business, which was growing slowly before the pandemic.

Jefferies analyst Martin Deboo said that while the benefits of combining the vitamins and oral-care businesses—which make up 45% of the Glaxo consumer health business—are clear, he questioned whether Unilever would be a good owner of the over-the-counter business. “Initial feedback on the deal from investors over the weekend has been almost uniformly negative,” he said.

RBC analyst James Edwardes Jones noted that much of GSK’s consumer-health portfolio involves clinical or medical products that are strictly regulated, creating hurdles to Unilever’s ambitions of rolling these out in new markets the way it is used to doing with more loosely regulated consumer brands.

Another problem for Unilever is that its shares have fallen in recent months and funding a huge deal such as the one it is proposing would require it to take on debt, analysts said. Companies like P&>, Nestlé and Reckitt are seen by some analysts as more likely buyers of the consumer-health business and Unilever’s disclosure could spur similar announcements from others, they added.

Unilever on Monday also said that later this month it would announce a “major initiative” aimed at enhancing performance, adding that the coming changes would allow it to be more agile, improve its focus and strengthen accountability.

Write to Saabira Chaudhuri at [email protected]