GlaxoSmithKline shares surged over 4% in early trade on Monday as the Pharmaceutical Group rejected a $50bn offer from Unilever for their consumer business.
GlaxoSmithKline said the offer ‘fundamentally undervalued’ the unit which contains brands such as Panadol and Sensodyne.
“GlaxoSmithKline’s share price has jumped on the news as Unilever’s actions effectively fire the starting gun for a bid war for the consumer goods unit. Nestle could be interested, so too private equity,” said Russ Mould, investment director at AJ Bell.
“Unilever looks to be bidding for the unit because it needs to inject some excitement into its business, having recently disappointed with sales and profit margins.”
“This really is a Marmite situation for GlaxoSmithKline’s shareholders – they’re either hoping for a quick return now through a sale or better returns in the future through the planned demerger.”
While Glaxo shares jumped, Unilever shares plummeted on the news. Unilever shares had crashed 6.5% at the time of writing on Monday morning on fears Unilever were set to overpay for the unit as they scrambled to implement their new strategy.
“The market has given a thumbs down to news that Unilever has bid for GlaxoSmithKline’s consumer goods division. The negative share price reaction probably reflects investors’ fears that Unilever is going to come back with a higher offer and potentially pay too much,” said Russ Mould.
Unilever have recently alluded to a new strategy that focuses on their Health, Beauty and Hygiene units and the attraction of GSK’s consumer business will mean Glaxo is in the position to squeeze Unilever on the valuation.
‘Based on Unilever’s new strategic direction, which includes increased focus on growth in the Health, Beauty and Hygiene segments, there could be another offer in the pipeline,” said Laura Hoy, Equity Analyst at Hargreaves Lansdown.
“The group says it will pounce on acquisition opportunities within the space, and they don’t get much more appealing than this one. With Unilever’s Tea business expected to bring in upwards pf £4bn when it’s sold later this year, management might have the firepower to sweeten the deal. Glaxo’s healthcare business comes with a hefty debt pile, though, which could keep a lid on the price Unilever—or any other suitors—are willing to pay.”