Big Unilever/Glaxo merger: a bad idea?

“A company that feels that it has to define the purpose of Hellmann mayonnaise has, in our view, clearly lost the plot,” investment firm Fundsmith cut short last week, in a “gay criticism.” harsh” about Unilever’s sobriety and underperforming stock, said The Economist. CEO Alan Jope had a perfect answer. The group has been quietly planning a massive £50bn merger with the consumer healthcare arm of GlaxoSmithKline to create an all-UK champion of consumer goods, with brands from Marmite, Pot Noodle and Dove (Unilever), to Sensodyne, Panadol and Tums (GSK). Forget accusations of belittling others. What kind of action is that?

GSK, which has three times rejected Unilever’s publicity, is not interested, Ben Marlow said in Daily telegram. Instead, CEO Emma Walmsley wants to list the consumer group (now partly owned by Pfizer). The market didn’t care either: it sent Unilever’s 7% stake south. “This is a very bad idea,” said BNP Paribas. “Please don’t,” added RBC Capital Markets, arguing that Unilever’s attempt to build an empire was “to offset and distract attention from” its problems. History certainly shows that massive transactions like these tend to “destroy value”.

Unilever’s logic is that “demand for health, hygiene and beauty products is likely to grow faster than food brands,” said Dasha Afanasieva on Reuters Breakingviews. But the high price of GSK will likely cause demand that could leave Unilever “indigestible”. Walmsley, who has his own problems with disgruntled investors, “must be delighted,” Ruth Sunderland said in Daily mail. The Unilever slant “sets a new base price for the business” and broadens her options. Should she open the field to other contractors? Make Jope up his ante? Stick with the float? To you, Dame Emma. Big Unilever/Glaxo merger: a bad idea?

Fry Electronics Team

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