GSK and Unilever’s offer:  What shareholders can gain?

FTSE 100 listed pharmaceutical giant, GlaxoSmithKline Plc (LON: GSK) has rejected another takeover bid for its consumer health business. GSK Plc’s consumer health business, which is known for many popular brands like pain relief products, Panadol and Voltaren, and Sensodyne toothpaste is a joint venture with US-based rival Pfizer, with a controlling stake of 68% with GSK Plc and remaining 32% stake with Pfizer.

As per recent media reports, the consumer health business received multiple takeover bids, including a £50 billion bid just before Christmas in 2021 by consumer-goods giant, Unilever Plc (LON: ULVR), which is the third-largest takeover bid in British history. However, the GSK Plc’s management rejected the bid as the deal undervalued the consumer healthcare business.

The most recent forecast by the GSK Plc shows that its consumer healthcare division’s annual sales will grow at 4%-6%, above the consensus analyst forecast. Moreover, the company’s management internally valued the consumer venture at around £47 bn- £48 bn. As a result, Unilever Plc’s cash and shares offer was rejected as it offered a smaller premium to the business and didn’t fully capture the annual sales potential of the business.

As per general market trends, it typically takes three or more rising takeover bids before a company’s management and shareholders agree to an offer. Hence, it comes as no surprise the takeover bid was rejected by GSK Plc. Moreover, the deal structure could be one of the largest in Britain history. It could see only big companies or consortium of private equity firm bid for the business, leading to bidding war and higher premium for the business.

Could it be a special year for GSK Plc’s shareholders?

The company’s management has previously announced the intention to demerge its consumer healthcare business and list it as a separate entity on the London Stock Exchange, leading to two distinct businesses: one focused on pharmaceuticals and vaccines and the other on consumer products. The company’s shareholders could receive shares of the new entity if the proposed demerger plan goes ahead.

However, the multiple takeover bids received for the business in recent months are expected to intensify further, leading to a bidding war and forcing the management to take another route and sell its business at a premium to its initial valuation. In both scenarios, the company’s shareholders could be benefited in the long run.

In addition, the company has a robust business outlook. It expects to deliver sales growth of over 5% and operating profit growth of more than 10% CAGR at constant exchange rates over the next five years between 2021-2026, which will benefit the revenue and stock price in the long term.  

GSK Plc’s recent stock performance

(Image Source: Refinitiv)

After the media reports of takeover bids, the GSK Plc’s stock has made a strong start and is up by over 4% in Monday morning trade. In the last one year, the stock has given a decent return of 16.09% to its shareholders. Its current market cap stands at £82,571 million. At the same time Unilever Plc shares have made a somber start and are down by over 6% at 8:44 AM BST.