Wednesday, September 27

Unilever bid for GlaxoSmithKline and Pfizer’s health business

The cleaning products giant, Unilever-NY Reg, has made a great offer to GlaxoSmithKline ADR Y Pfizer for his consumer health business for an amount amounting to 68 billion dollars. However, this proposal can be risky depending on Carol Ryan en The Wall Street Journal.

Univeler confirmed on Saturday a report from the Sunday Times of London that it made a bid for the joint venture between Glaxo and Pfizer that makes the Centrum vitamins and Panadol pain relievers.

The business in question, which the two pharmaceutical giants forged from their separate consumer assets in 2018, will be broken up and listed separately later this year. Unilever’s third and final cash and stock offer for £50 billion, equivalent to $68.3 billion at current exchange rates, valued the unit at 18 times the earnings projected before interest, taxes, depreciation and amortization, as Bank of America. Glaxo, which controls the business with a stake of the 68%, rejected this as too low.

How is Unilever’s financial performance?

Unilever is under pressure to fix its weak growth. Spending €16 billion, or $18.2 billion, in fashion brands, including Dollar Shave Club, between 2015 and 2020, neither of which has really moved the needle. Major acquisitions and disposals used to be difficult due to the two-way price both in the UK as in the Netherlands, but this issue was finally resolved last year. It is now much easier for Unilever to use shares to fund new deals, a flexibility that also carries a higher risk of shareholder dilution.

To get its hands on the consumer healthcare unit, Unilever would need to improve its offering at a time when its shares are trading at their lowest levels since early 2017. Glaxo and Pfizer are seeking £60 billion, according to the Financial Times. That would mean taking on a lot of debt as well as issuing shares, although Unilever has hinted it could sell its food brands to finance the purchase.

This deal may not be worth it. More than half of Glaxo’s consumer health care sales are over-the-counter drugs such as Advil pain relievers. The market OTC world is growing between a 2% and 3% per year, according to the estimates of Barclays, below Unilever’s sales growth target of 3 % al 5 %. Currently, management also does not have the necessary clinical and regulatory experience to operate this type of business.

The remainder of the Glaxo unit is made up of vitamin brands such as centeras well as oral care products such as toothpaste Sensodyne. The nutritional supplements market is more promising, with global growth expected to be around 5% per annum as consumers become more health conscious. It is also highly fragmented: the top five players control only the 14% of the global vitamin market, according to Barclays. Unilever already generates around one billion euros in sales from brands such as SmartyPants Vitamins y OLLY Nutrition. the rivals Nestlé and Reckitt They are also betting on nutritional supplements.

The way news of the Glaxo bid broke, forcing Unilever executives to explain the logic of this surprising turnaround at short notice, may not have helped. But investors are right to be wary. Several major consumer staples deals have destroyed shareholder value in recent years, including the purchase of Danone’s WhiteWave and the acquisition of Mead Johnson de Reckitt. While showing ambition, Glaxo’s healthcare offering seems like the wrong remedy for Unilever’s growth woes.

Unilever is trading at $54.29.