Jefferies’ Martin Deboo said raising the offer to £55billion in cash would take Unilever’s cost and debt to a “prohibitive amount”.
Unilever would be forced to tap investors by raising £14billion or borrowing and selling assets, most likely from its food business, to fund an improved supply while keeping debt under control, he said. Jefferies said the initial offer had a “modest” premium.
“We would expect disclosure of Unilever’s approach to encourage other OTC participants like P&G and Reckitt to use their slide rules, as well as perhaps Nestlé,” Deboo said. “Any auction would be a test of Unilever’s resolve and the already stretched economics of the deal.”
GSK plans to spin off and list the consumer healthcare business, but is open to a sale if it can offer better returns to shareholders.
The company has come under intense pressure from fearsome US activist investor Elliott Advisors, who urged it to consider a sale.
GSK said all three offers from Unilever “fundamentally undervalued the consumer healthcare sector and its future prospects”, arguing that it failed to recognize the division’s “potential”.
He added that he “remains focused on executing his spin-off plan” and that the spin-off “is on track to be completed in mid-2022.”
Unilever argued that GSK’s consumer healthcare division is “a leader in the attractive consumer healthcare space and would be a solid strategic fit as Unilever continues to reshape its portfolio”.
News of the deals came just days after one of Unilever’s top investors slammed the company for its “ridiculous” focus on sustainability.
Terry Smith, who manages the £29bn Fundsmith Equity fund, said in a letter to its investors: “A company that feels it has to define the purpose of Hellmann mayonnaise has, in our view, clearly lost track.
“The Hellmann’s brand has been around since 1913, so one would assume consumers have now realized its purpose (spoiler alert – salads and sandwiches).”
Unilever and GSK declined to comment.