Unilever tipped to ditch Magnum as it mulls sweeter GSK bid

Consumer foods giant Unilever may sell brands like Magnum as it eyes a healthier product focus.

Unilever plans to sharpen its focus on health and hygiene and sell off slow-growth brands as it weighs making a higher offer for GlaxoSmithKline’s consumer unit.

The consumer goods giant said it will announce a revamp of its structure later this month. 

The company will refocus around its health, beauty, and hygiene operations, suggesting sell-offs may involve its food operations, which include the Ben & Jerry’s and Magnum ice cream brands.

The strategy shift comes after Glaxo said over the weekend that it rejected three offers from Unilever for a bundle of brands including Advil painkiller and Sensodyne toothpaste, the latest of which was worth £50bn (€60bn).

“This is not about Unilever going from a £100bn (€120bn) company to a £150bn (€180bn) as there will be portfolio rotation,” chief executive Alan Jope said. 

We are looking for competitive, responsible growth and don’t conflate this activity with a defensive mindset.

Mr Jope is aiming to make his biggest changes at Unilever since becoming CEO three years ago. 

The company will review food businesses with lower growth prospects, though has no immediate plans to divest the food and refreshment operations in their entirety, he said. 

Brands such as Hellmann’s mayonnaise and Ben & Jerry’s ice cream have good growth prospects, he added.

Acquiring the Glaxo unit is not the only potential option for Unilever as it seeks to expand in health, according to Mr Jope. 

The planned reorganisation will focus on efforts to seek new growth rather than cost-cutting, he said.

Higher bid required

Unilever would need to raise its bid for GSK’s consumer healthcare unit by about £7.3bn (€8.7bn) to have a hope of winning the backing of GSK’s board, according to analysts.

A bump to £57.3bn (€68.6bn) is needed, based on the average estimate from 11 analysts, traders, and brokers, with predictions ranging from £54bn (€65bn) to £65bn (€78bn).

While Unilever could increase its offer to about £55bn (€66bn), “we are very doubtful this will be sufficient to persuade the GSK board or GSK investors,” analysts at Citigroup said. 

The stock component of the offer, plus the tax bill that Glaxo would face on the cash proceeds, are among the reasons it may not go for the deal, they said.

Morgan Stanley sees an enterprise value for the Glaxo consumer healthcare unit of £59bn-£72bn (€71bn-€86bn), assuming growth of 4% to 6%. 

Given that, it’s clear why Glaxo and minority partner Pfizer rejected offers up to £50bn.

Unilever is understood to have held talks with banks about additional financing for a potential sweetened offer for the Glaxo unit.

Some financial firms have discussed lending enough for a higher bid. Unilever hasn’t made a final decision on using the firepower.

Glaxo has been planning to spin off its consumer brands, but shareholders including Elliott Investment Management, have been pushing CEO Emma Walmsley to consider a sale instead. 

The drugmaker said over the weekend it’s sticking with plans to spin off the portfolio.

Unilever has made preparations that could make a divestment of its food business easier; a little over a year ago the company streamlined itself into a single UK-based entity, ditching its long-time dual nationality. 

One reason for abandoning the cumbersome structure was to ease prospects for transformative merger-and-acquisition deals.

Unilever could either sell the entire food unit, which makes Knorr stock cubes, Marmite, Colman’s and Maille mustards, Hellmann’s mayonnaise, and other products such as plant-based protein alternatives. 

Alternatively, it could divest its ice-cream business, the world’s largest, which includes brands such as Ben & Jerry’s, Magnum, Solero, as well as high-end gelato labels Grom and Talenti. It generates revenue of about €7bn (€8.4bn) annually.

• Bloomberg