Unilever’s bid for GSK consumables isn’t quite the shocker it seems

This could be a long campaign and, despite all the difficulties, there is a logic to the proposal

Last modified on Mon 17 Jan 2022 15.45 EST

Even a Marmite reaction – some loving it, some hating it – would have been better from brand owner Unilever’s point of view. Unfortunately, almost everybody seemed to agree: the big idea of offering £50bn for GlaxoSmithKline’s consumer products division, a proposal rejected by the pharmaceutical firm’s board, was a shocker.

Unilever’s share price plunged 7%, which is a large move when you’re worth (or were) £100bn. “Initial feedback on the deal from investors over the weekend has been almost uniformly negative,” reported Jefferies analyst Martin Deboo. Amid chief executive Alan Jope’s talk about “rotating” Unilever’s product portfolio, one line of thinking says he’s in danger of rotating himself out of a job.

Is it really such a terrible proposal, though? In purely strategic terms, the fit looks decent. If your aim is to be bigger in “health, beauty and hygiene”, which Unilever has been saying for a while, then GSK brands such as Panadol, Advil and Sensodyne are one definition of what you want. If the targeted operation can be relied upon to increase sales annually at 4%-6%, which is GSK’s revised estimate, that’s a notch above the 3%-5% at which Unilever generally travels.

The difference is not huge, obviously, but Unilever would also seek buyers for some or all of its food operation, parts of which show roughly zero growth. That’s the “rotation” part of Jope’s script, also designed to ensure that borrowing does not rise to nose-bleed ratios.

Jope faces at least five problems, however – and none is small. First, GSK is under little pressure to sell. Its investors seem happy with the current plan to demerge the consumer products business this summer via a listing in London. It might take an offer at £55bn to force negotiations.

Second, Jope is trying to execute a mega-deal with Unilever’s share price close to a five-year low. Given that new shares represented £8.3bn of the rejected £50bn offer, the deal mechanics would turn far more smoothly at a higher share price.

Third, Jope has exposed himself to the charge that he should try to fix what he’s got before contemplating a “transformational” mega-deal. Grumbling about Unilever’s pedestrian performance is not confined to Terry Smith, the fund manager who made an entertaining jab last week about a corporate obsession with finding purpose in mayonnaise. The wider issue is a sense that Unilever isn’t converting its “sustainability” credentials into grubby profits at the required rate. Nestlé’s success stands in contrast.

Fourth, Jope didn’t calm nerves by talking about alternative deal-making “options” should the GSK adventure not come off. If plan A for a big acquisition is hopeful, plan B is vague.

Fifth, any strategy that involves spending £50bn and then selling, say, £30bn of food assets is complex. Brands like Hellman’s, Ben & Jerry’s and Marmite might attract a rush of would-be buyers, but the overall disposal tally is what matters, and it’s not guaranteed.

For all those reasons, Jope’s chances of success in his pursuit look slim – maybe 25%. But that is a day-one view and momentum can turn. If Unilever could produce a big and credible cost-saving plan, it might change the mood. Evidence that revenues have accelerated after last year’s tepid third-quarter performance would also help – financial results are due next month.

It’s not much to cling to, but do not count out Unilever just yet. This could be a long campaign and the ambition, for all the practical difficulties, looks entirely reasonable. A medicines-for-Marmite strategy is not illogical.

Game, set and match: Saint António is out

The default assumption is usually that Swiss banks are inward-looking institutions that always find a way to remove a reform-minded outsider from the boardroom. No such conspiratorial thinking is required in the case of António Horta-Osório at Credit Suisse, however. The former Lloyds Banking Group boss is entirely the author of his own downfall.

He seems to have broken Covid quarantine rules in both Switzerland and the UK, the latter on a trip to watch the tennis at Wimbledon last summer. And the initial plea that the breaches were “unintentional” was undercut by reports in the Swiss press that he sought official exemptions from the quarantine rules and was refused.

Resignation was the only possible outcome, especially as Saint António was hired as chairman of Credit Suisse to promote what he called “a culture of personal responsibility and accountability” at the bank after its many entanglements, including Greensill Capital. Even on his home patch at Lloyds, AHO surely wouldn’t have survived this episode.

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