Shares of GlaxoSmithKline surged on Monday, while Unilever stock tumbled following a failed $68 billion bid by the latter to acquire the pharmaceutical giant’s consumer healthcare arm.
Driving the FTSE 100 higher and at the top of the Stoxx Europe 600’s gainer’s list, was GlaxoSmithKline
offer for the unit behind painkiller Advil and Sensodyne toothpaste that it jointly owns with Pfizer
Glaxo, which had been planning to spin off the unit, said it had received three separate bids from Unilever, the last coming Dec. 20.
At the top of the decliner’s list, Unilever shares dropped 6%. The U.K. consumer goods group announced Monday that it will focus on higher-growth categories such as health, beauty and hygiene following a strategic review. That plan will include acquisitions and divesting lower growth brands and businesses, it said.
Some investors are hoping Unilever come up with a fourth bid. A team of Berenberg analysts led by James Targett, said it wll probably need to increase any new offer to £55 billion to get the deal done. That’s as competing bids from Procter & Gamble
or private equity can’t be ruled out, he said, in a note to clients.
And while Unliever’s management is showing itself as “open to more transformative acquisitions,” questions are now also raised about its ability to accelerate growth with the current portfolio, he said. Divesting the food & refreshment unit could fund a further bid for the Glaxo arm, but that would mean giving up some of Unilever’s most attractive categories, said Targett.
Jefferies analysts also noted some “indigestion risk” for Glaxo shareholders of any deal.
“The mid-2022E spin of consumer is widely viewed as an event that could crystallize value, hence a sale likely dampens near-term appetite to own the stock at a time when the pipeline remains a work-in progress,” said a team led by analyst Peter Welford. A sale in the £50 billion ballpark would leave management with £34 billion in cash for that stake, leaving the company with £12 billion net cash.
“In theory this war chest provides ample strategic optionality to rebuild a pipeline and invest in focus therapeutic areas, but at least initially we expect many shareholders would fear a large acquisition and the risk of inferior returns,” said the analyst. Jefferies rates GlaxoSmithKline a buy.
Investors were also absorbing data that showed China’s economy expanded by 8.1% in 2021, but sank to 4% over a year earlier in the final three months of 2021.
The Stoxx Europe 600 index
rose 0.2% to 482, coming off last week’s 1% drop, the second straight weekly decline to start 2022.
The German DAX
rose 0.2%, the French CAC 40
rose nearly 0.4% and the FTSE 100 index
climbed 0.6%. U.S. markets are closed Monday in observance of in observance of Martin Luther King, Jr. Day.