GlaxoSmithKline and Pfizer await improved bid of at least £ 60 billion for their joint investment in consumer health, backed by shareholder opposition Unilever’s bid worth £ 50 billion.
On Saturday, GSK rejected Unilever’s offer as “fundamentally undervalued”, as it revealed improved business forecasts.
According to one person close to Pfizer, a 25 percent premium on the estimated value of the business – which would raise the bid above £ 60 billion – would require serious consideration from management. Another person familiar with the matter said it would be “hard to refuse”.
GSK planned to single out the unit, in which it owns a 68 percent stake but is under pressure to consider a sale, including U.S. hedge fund Elliott Management.
Marco Taricco, co-head of investment at Bluebell Capital Partners, another investor activist advocating for GSK to consider a sale, said: “Based on the limited information we have so far, £ 50 billion sounds like a floor, but needs to be improved, either from Unilever or someone else. ”
Richard Buxton of Jupiter Capital Management, GSK’s 30 largest shareholders, said the company should continue to spin-off because the consumer health department has “a great future as an independent company that can be re-evaluated over time as the market understands better ”.
“It’s a ridiculous idea to let Unilever jerks run it. . . There is no price at which I would like to sell it to them, “he said.
The two sides are struggling to assess the value of the consumer company and have different views on the premium already offered, say people familiar with the situation.
GSK’s guidelines for medium-term growth of 4 to 6 per cent are higher than many analysts ’estimates of around 3 to 4 per cent, which could encourage them to increase their estimates from the current range of around £ 37 billion to £ 48 billion.
Unilever’s approach could encourage other suitors to join, people familiar with the issue said. Procter & Gamble is considering adding more consumer health funds to its product portfolio, they said. But she has not yet made an offer and could eventually decide to move to Johnson & Johnson’s consumer healthcare property, which the U.S. company decided to set aside in November.
The competitive offer for GSK / Pfizer business would be based on multiple pre-interest profits, taxes, depreciation and amortization in middle teens, a potential synergy of 14 to 15 percent and a premium of at least 25 percent, according to people familiar with the owner’s thinking.
The consumption of the unit is projected to reach 2.7 billion pounds in 2022, so the base value would be around 48.6 to 51.3 billion pounds. Synergies in revenue of £ 9.6 billion would add another £ 1.3 billion to £ 1.4 billion. The premium would be a minimum of £ 12 billion, bringing the total purchase price to £ 61.5 billion.
But GSK management will also have to weigh other factors, including tax and time. One former board member said one of the attractions of the spin-off was that it should have been tax-exempt. The sale would likely mean that both GSK and its shareholders were burdened with the tax bill, although there may be ways to mitigate this.
“I doubt that GSK will want to refuse to separate,” he said.
A spin-off is planned for mid-2022, but sales of this magnitude would take longer. Regulators would reconsider the transaction although there is no apparent significant overlap between the two companies.
Unilever could struggle with setting a much higher bid, with concerns that it could be hampered by debt. Bruno Monteyne, an analyst at Bernstein, said: “Unilever already has relatively high financial leverage, and by paying mostly in cash, you would have a new high-impact company that would have to focus on paying debt for years instead of boosting growth.”
Jefferies analyst Martin Deboo warned that a £ 55bn cash deal would lead the debt to “too high” 5 times the ebitda.