Key points:
- The Unilever share price has risen 8%
- The rise is on the back of the likely failure of the bid for Glaxo’s consumer health arm
- Unilever has insisted that it will not raise the price on offer
- what does Unilever do next?
Unilever PLC (LON: ULVR) shares have risen 8% in London as the company has, effectively, declared the bid for GlaxoSmithKline PLC’s (LON: GSK) consumer health arm to be over. This is not because the market thinks that not buying the Glaxo arm is a good idea for Unilever so much as buying it would have been a not-good idea.
What worries the market more generally now though is where does Unilever go from here? For once management does get an idea bit between teeth they can end up doing things expensively and badly. While that first thing thought of doesn’t work, the idea of doing something is firmly implanted and so second, or fourth or seventh best things might get tried.
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As background here Glaxo is bundling up its consumer health arm to be floated off separately later this year. They want out of the business. Unilever then made an approach to buy it in a direct transaction. At which point, as we noted, Unilever’s share price dropped 6%. There were two concerns. Firstly, given that Unilever isn’t managing its own brands all that well then paying real cash to manage not very well more brands doesn’t seem like a good idea. Secondly, Unilever's management might well stretch and strain fiscal resources to be able to make the deal go through.
That second worry is now over, as Unilever has announced they’re not going to raise their £50 billion price, noway nohow. “Accordingly, we will not increase our offer above £50bn.” Make a statement like that to the market and you’re stuck with it for 6 months. Glaxo has indicated that they’ll not accept £50 billion, so we could say that this story is over then.
Except that’s often not how these stories do end up. Unilever has another announcement, a strategic review. There are good bits – Unilever will get rid of the duds and try to move into those areas which are growing nicely. But then all corporate managements try to do that.
What will be worrying is that Unilever has outlined that they will be trying to make these moves by acquisition. As with Glaxo of course. But once management has made that decision, been rebuffed by that first choice acquisition, then what are they going to try to buy next?
If that first target was deemed, by the market, to be value destructive for Unilever shareholders, then what might management try to buy next?
A reasonable forecast is that the Unilever share price is going to be volatile connected to whatever announcements management makes about acquisitions. Given the market’s scepticism about the Glaxo offer, it’s not obvious that any deal announced will push up the Unilever price. Not unless it’s clearly and obviously an entire bargain. Especially as corporate managements, once they’ve decided to do something, have a habit of ending up doing anything.
