Unilever Walks Away From Glaxo Consumer-Healthcare Deal

Glaxo said Saturday that Unilever had made three proposals for its consumer unit late last year—which Glaxo rejected because, in its view, 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 billion—and was made up of £41.7 billion in cash and £8.3 billion in shares, it said.

Glaxo also talked up growth prospects of the unit, which is 32% owned by Pfizer Inc. and sells everything from Aquafresh toothpaste to Advil painkillers, saying it thought the business could deliver organic sales growth of 4% to 6% over the medium term.

On Wednesday, Unilever said it had taken those figures into account but that they didn’t change its view about the value of the business. Unilever is “committed to maintaining strict financial discipline to ensure that acquisitions create value for our shareholders,” it said.

Unilever also said it was committed to improving the performance of its existing brands, including through a coming reorganization, and rejiggering its portfolio by divesting slower-growth categories and moving into higher-growth ones.

Still, ending its pursuit of the Glaxo deal is unlikely to quell shareholder discontent at Unilever. Some analysts and investors say management’s credibility has taken a hit from the episode, and that Unilever could be ripe for an activist investor or an outright takeover itself.

“The Unilever investment case has taken a real severe dent,“ said RBC analyst James Edwardes Jones. “The board has seemingly decided that the existing business is inadequate and demonstrated a willingness to countenance what we believe would have been a very unpalatable approach to capital allocation.”