Unilever Acquisition: Sentiment or Risk?

Consumer giant, Unilever, plans to acquire a medical device company owned by pharmaceutical groups GlaxoSmithKline and Pfizer for £50 billion, or around Rp974.38 trillion (exchange rate Rp16,220.60 per £1). This acquisition offer plan had previously been put forward but was rejected because the value was deemed too low. "GSK Consumer Healthcare would be a suitable strategy," said British company Unilever, in a statement, quoted by CNBC Indonesia, Monday (1/17). The proposal reveals an acquisition offer worth £50 billion, or about US$68.4 billion (Rp978.12 trillion). The value includes a cash payment of £41.7 billion and £8.3 of Unilever stock. For the record, GSK Consumer Healthcare is a joint venture between GSK and Pfizer, where GSK acts as the largest shareholder with 68% ownership and Pfizer 32%. 

"As a result of Unilever's report of interest in GSK Consumer Healthcare, today we are proposing a planned update, setting out the strategic direction the company is currently pursuing," Unilever said to CNBC Indonesia on Monday (1/17). Global rating agency, Fitch Ratings, assessed Unilever risked sacrificing its top credit rating if it proceeded with a new bid for its consumer health division GlaxoSmithKline (GSK), which was valued at £50 billion or Rp978 trillion (exchange rate Rp16,220.60 per £1). Fitch said that no material divestment would push Unilever's debt to between 4.5 and 5 times earnings before interest, taxes, depreciation and amortization, a level at which Fitch would consider an adverse rating action. "Unilever, which is rated A with a 'stable' outlook, could face a downgrade to three times B - the lowest investment grade rating," Fitch said in a note. The purchase of the GSK division or other major targets would likely increase Unilever's debt to the point where it will struggle to cut lending to levels worthy of an A rating in the next three years. Unilever's share price has plunged more than 10% since news of the offer was reported earlier this week. 

GSK emphasized that it rejected the three proposals on the grounds that Unilever's offer underestimated the business prospects in the consumer healthcare sector and its prospects for the future. "GSK's board unanimously concluded that the proposal was not in the best interests of GSK's shareholders as it fundamentally underestimated the consumer healthcare business and its prospects for the future," GSK said in a release on Saturday (1/15). The GSK board added that the company's current focus is on maximizing value for GSK shareholders. As if not ceasing, Unilever again plans to increase the acquisition of GSK consumer healthcare. Unilever's management explained that this acquisition plan is in line with Unilever's strategic plan going forward, which is to expand its presence in the health, beauty and hygiene sectors. All Things considered, The fantastic number of offers, which are still considered too small, does make sense because the healthcare industry has been growing rapidly since the beginning of COVID-19. 

Sources

Bisnis

CNBC Indonesia

iNews

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