Unilever’s Glaxo quest leaves investors reaching for the painkillers

And to keep its “financial discipline” Unilever plans to sell off its lower-growth food brands – Marmite, Hellmann’s and Ben & Jerry’s are all facing the chop to fund any potential deal. 

Jope has stressed GSK’s business is just “one option” available to buy: “There are other consumer healthcare businesses around that also represent very attractive potential additions to the Unilever portfolio.” 

Unilever seeks pain relief

It is a rejig that Unilever was probably hoping the City would cheer.

For years, the company has been bashed with criticism over its flatlining performance, prompting RBC Capital Markets last October to quip: “It is a sign of how depressed expectations had become for Unilever that the worst quarterly volume performance since 2009 was greeted by a 3pc rise in the share price.”

It is Jope who has borne the brunt of the criticism – his penchant for purpose-driven brands rather than profit becoming a bugbear among investors. In 2019 the Brit said Unilever would sell off brands which “don’t stand for something”. 

Just last week, fund manager Terry Smith launched a broadside at this stance and said Unilever “seems to be labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals”. 

Others have been similarly critical of Unilever under Jope, with Lindsell Train Investment Trust’s Nick Train having described its performance as “crushingly pedestrian”. 

Before Monday’s share price drop, Unilever had lost around 4.5pc under Jope’s tenure. In the last six months, it has been one of the 10 worst performers on the Euronext 100.

One major criticism levied at Unilever has been a lack of M&A activity to enhance its portfolio of brands. Yet the initial reaction over the plans to do just that – offloading food brands to focus on just three core areas of health, hygiene and beauty – suggests this may not have been the change the market wanted. 

‘Value destruction’

While talk of a sweetened offer continues to rumble, analysts are scrambling to voice scepticism over a deal’s benefits for Unilever.

Bernstein downgraded its rating on the consumer goods giant early on Monday.

In a note, analyst Bruno Monteyne warned a swoop would be a “very bad deal” for shareholders as the improvement in earnings per share would not be enough to justify the leverage, while a sweetened offer could prove particularly harmful. 

“If a deal ultimately emerges at around £55bn that would imply £10bn of shareholder value destruction,” he said.

Others are similarly cautious. Estimates from Barclays suggest the valuation multiple from the £50bn bid was 20 times earnings before other costs. “With management credibility already an issue, this deal will be hard to stomach, even given the many positives,” said Barclays’ Warren Ackerman. 

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