Unilever/Glaxo mega-merger: a very bad idea?
History certainly suggests that giant deals like this tend to ‘destroy value’
“A company that feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot,” sniped investment firm Fundsmith last week, in a “withering criticism” of Unilever’s woke ideology and poorly performing shares, said The Economist. CEO Alan Jope had the perfect retort. The conglomerate has been quietly plotting a blockbuster £50bn mega-merger with GlaxoSmithKline’s consumer healthcare arm to create an all-British consumer goods champion, with brands ranging from Marmite, Pot Noodle and Dove (Unilever), to Sensodyne, Panadol and Tums (GSK). Forget allegations of navel-gazing. How’s that for action?
GSK, which has thrice turned down Unilever’s overtures, isn’t keen, said Ben Marlow in The Daily Telegraph. CEO Emma Walmsley wants to list the consumer arm (currently part-owned by Pfizer) instead. Neither is the market keen: it sent Unilever’s shares 7% south. “This is a very bad idea,” said BNP Paribas. “Please don’t,” added RBC Capital Markets, which reckons Unilever’s attempt at empire-building is “to compensate for, and distract attention from” its problems. History certainly suggests that giant deals like this tend to “destroy value”.
Unilever’s logic is that “demand for health, hygiene and beauty products is likely to grow faster than food brands”, said Dasha Afanasieva on Reuters Breakingviews. But the high price GSK will probably demand could leave Unilever with “indigestion”. Walmsley, who’s had her own problems with disgruntled investors, “must be delighted”, said Ruth Sunderland in the Daily Mail. Unilever’s tilt “sets a new base price for the business” and widens her options. Should she open the field to other bidders? Make Jope up his ante? Stick with the float? Over to you, Dame Emma.