Unilever has made an offer of 60 billion euros to GSK Consumer Health, a manufacturer of toothpastes, painkillers and dietary supplements. The offer has been rejected, but Unilever may bid again. If successful, the deal will be Unilever’s biggest acquisition ever. Six questions about and answers to a potential mega deal.
60 billion, hey
Yes, a lot of money. Too much, some think. On Monday, the day after the news was announced, Unilever’s share price fell by 6.7 per cent. It is unusually high for a large company that makes many consumer products and therefore does not run a small risk. It was also striking that a number of major shareholders and analysts were negative about the offer in British and American newspapers.
Why do shareholders complain?
GSK Consumer Health is a subsidiary of the pharmaceutical company GlaxoSmithKline and is co-owned by the American pharmaceutical company Pfizer. It manufactures toothpaste (Aquafresh, Parodontax, Sensodyne), painkillers (Advil, Panadol), dietary supplements (Center) and over-the-counter medicines such as Otrivin (nasal spray) and Nicorette (smoking cessation medicine). Unilever also makes some of these products itself, especially toothpaste.
GSK’s consumer division, which last year had a turnover of about 11.5 billion euros, is growing, but not excessively: about 4 to 6 percent a year, GSK claims. Then 60 billion euros is too much, they thought shareholders and analysts. Some noted that the purchase does not solve Unilever’s significant problem: Unilever itself is no longer growing fast.
Is that the case, is the growth out?
Under the leadership of former CEO Paul Polman, best known for his advocacy business and efforts for greater sustainability, Unilever typically grew strongly between 2009 and 2019, especially in emerging markets. Shareholders benefited from this, as the share price rose nicely with that growth. But since then, the stretch has expanded a lot, even though it is partly due to the corona crisis: Some Unilever products sell very well in pandemic time (soap), others not (ice cream).
And then there is the stock price. When Polman retired in January, one share cost 47.40 euros; last Friday it was 47.22, Monday 44 euros and Tuesday 43 euros. At the same time, the AEX index rose by 58 per cent. Unilever’s competitors are also more popular on the stock exchanges than Unilever. Well what do you get then? Then there are shareholders who start complaining and who say that the company needs to change course. Read: more revenue and profits must be created.
So is Unilever making a fuss?
Price comparisons are always difficult. The AEX index consists of 25 sections. This includes the necessary technology companies that are growing fast and are highly sought after by investors. But they do not make soups, sauces, detergents and shampoos like Unilever. Unilever is a competitor to Nestlé, but does not make coffee and animal feed: Nestlé makes and makes a lot of money from it.
Colgate Palmolive makes toothpaste, but not food. Procter & Gamble makes a lot of money with its diapers and razors, Unilever does not make them or on a small scale. Danone is big in dairy, Unilever is not. So you can not compare these companies and their prices one to one. Although it remains that the Unilever stock has not risen in three years.
But has Unilever not spoiled its shareholders in recent years?
Correct. After rejecting a spectacular offer from Kraft Heinz in 2017, Unilever increased its dividend, began buying its own shares, cutting back more and selling its margarine division. Polman’s successor, Alan Jope, left the big tea division last year with brands like Lipton. For it did not grow fast enough. But there are no longer any price increases as in Polman’s time.
And what now?
Maybe Jope comes up with a higher offer, maybe not. If he does not, he will continue with his plan to place more emphasis on personal care and health products. Polman already did, although he mainly bought small manufacturers of luxury brands. Jope also wants to get rid of business units that are not growing or making profits: It will primarily be food.
And that brings to mind the year 2000, when Unilever completed its last mega-purchase: Bestfoods. Since then, brands like Knorr and Hellmann’s have been part of the Unilever stable: food. That purchase is not a failure, but a few years after the $ 20 billion mega-purchase, Unilever had to write off a few billion euros on its acquisition. Bought too expensive. As often happens with mega-acquisitions.
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