GlaxoSmithKline rejects $68bn Unilever offer for its healthcare unit

A potential deal between the two companies would rank it among the top deals globally since the beginning of the pandemic

A visitor leaves GlaxoSmithKline Plc's headquarters in London, U.K., on Wednesday, Feb. 5, 2014. GlaxoSmithKline, the U.K.'s biggest drugmaker, forecast that revenue will rise by about 2 percent this year as it introduces new medicines. Photographer: Chris Ratcliffe/Bloomberg

GlaxoSmithKline rejected an offer from Unilever for the drugmaker’s consumer healthcare unit last year that valued the business at about £50 billion ($68bn), according to people familiar with the matter.

Unilever confirmed the approach in a statement on Saturday, saying the Glaxo unit would be a “strong strategic fit” as the owner of Ben & Jerry’s ice cream and Dove soap reshapes its portfolio.

Unilever is still interested and could return with a fresh bid, although no final decision has been made, said the people. Glaxo’s board is open to all proposals but the bid was not within a range it would consider, they said, adding that a spin-off of a business that includes brands such as Sensodyne toothpaste and Advil painkillers remains the preference.

A potential takeover would rank among the top deals globally since the beginning of the coronavirus pandemic, and comes at a time when mergers and acquisitions activity is at an all-time high. A deal would speed the transformation of two of the UK’s biggest companies, each of which is facing shareholder pressure to improve performance.

With analysts valuing the Glaxo consumer business at as much as £48bn, any offer from Unilever would likely have to include a significant premium over that level, as well as a consideration of synergies, to tempt Glaxo away from the spin-off plan, which is already at an advanced stage.

The dental business is the main draw in Glaxo’s consumer portfolio, offering the biggest growth as almost all other businesses and brands are either losing momentum or growing slowly, the people said. The consumer health unit took on its current shape in 2019 after a deal with Pfizer, which retains a minority stake.

Glaxo chief executive Emma Walmsley has been under pressure from shareholders, including activist fund Elliott Investment Management, to be more open to a sale of the consumer division as it seeks to revitalise the core pharmaceutical business. The company hired former Tesco chief executive Dave Lewis in December to lead a spin-off and listing of the consumer goods arm.

Glaxo previously had interest from Advent International, CVC Capital Partners and KKR & Co. for the business, even as it had been preparing for the listing last autumn.

Unilever chief executive Alan Jope is also under pressure from some investors over the company’s poor performance of late.

Terry Smith, the founder of Fundsmith and one of Unilever’s top 15 shareholders, criticised the group this week in his annual letter to investors. He said the company, whose brands also include Hellmann’s mayonnaise and Domestos cleaners, had “lost the plot” with a focus on publicly displaying sustainability credentials at the expense of focusing on the business.

Mr Jope has continued the sustainability drive spearheaded by former chief executive Paul Polman. Under the two chiefs, Unilever has also reshaped its portfolio, selling slower-growing businesses such as its spreads unit and, more recently, its tea business, while acquiring Glaxo’s consumer operation in India that includes the Horlicks brand.

Nevertheless, the shares have fallen 10 per cent over the past 12 months, which compares with a 20 per cent gain for competitor Nestle, where chief executive Mark Schneider has taken more aggressive steps to seek new growth and cull underperforming units.

Just over a year ago, Unilever completed its streamlining into a single UK-based entity, ditching its longtime dual nationality and reversing an earlier plan to consolidate in the Netherlands. One reason for abandoning the cumbersome structure was to ease prospects for transformative merger-and-acquisition deals.

Deutsche Bank and Centerview Partners are advising Unilever, according to the people familiar with the situation. Glaxo is working with Goldman Sachs Group and Citigroup on the listing and activist defence, Bloomberg News reported in June.

The Times newspaper first reported on the Unilever offer on Saturday.

Updated: January 15th 2022, 4:39 PM