According to Bloomberg News, analysts are dissuading 50 billion pounds or $68 billion offer of Unilever Plc for consumer health business of GlaxoSmithKline Plc’s is strongly discouraging words.
In a series of notes on Monday morning, analysts were found criticizing Unilever for attempting to pursue the deal, saying that it will not make sense and that the valuation would be of eye-watering value. Bruno Monteyne, associated with Bernstein thinks that consumer health is not a high growth sector and as far as track record is concerned, Unilever does not have a good one.
There is no overlap of Unilever with even two-thirds of Glaxo’s business of consumer health and when it comes to experience in regulatory issues related to clinical and medical products, as per Edwards Jones associated with RBC.
The investors have responded by dumping the shares of Unilever consequently causing the stock price to tumble down by as much as 7.3%, which is being regarded as the highest decline in two years. On the other hand shares of Glaxo gained 3.7% in London.
While in a statement Saturday, Glaxo stated that Unilever had made three unsolicited offers for the consumer healthcare segment, and the final one was on December 20th, and the amount was 41.7 billion pounds in cash and Unilever shares would be 8.3 billion pounds. According to Glaxo, it did not approve of the offer because it had undervalued the business.
Unilever continues to be interested and is planning to return with a fresh bid, although there is no final decision yet as expressed by people who know about it and expressed the same to Bloomberg News.
Glaxo’s board prefers a spin-off that is planned in businesses like Advil painkillers and Sensodyne toothpaste. As per analysts, Unilever must increase the bid to significant levels so that Glaxo can be kept away from its spin-off plan. If a deal is struck that amounts to 55 billion pounds, it is quite likely that Unilever will be shelling out at least 10 billion pounds over what it would be spending for the anticipated growth it expects. Bernstein’s Monteyne stated this. In that case, it is a bad deal.
One positive aspect is that Unilever will be a global pioneer in consumer health and gain leading brands that would facilitate its expansion in the emerging markets, said Warren Ackerman of Barclays Plc.
However, that would come at a very high price, reported Bloomberg News. As per estimates shared by Barclays, which is based on the recent offer and forecasts for consumer business of Glaxo, the valuation would be at least 20 times that of Ebitda. Ackerman said that few deals had taken place at such high multiples and those that have been able to create value.
He also said that since the management’s credibility is already an issue, this deal will be complicated despite the many positives.
