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Unilever/GSK: slicing the salami should attract buyers

The odds, like shareholders, are stacked against Unilever’s £50bn bid for GlaxoSmithKline’s consumer health unit. But if it wins over the doubters at a higher price, assets will go on the block.

All the signs point to the food and refreshments division, a pantry stocked with Hellmann’s mayonnaise, Knorr stock cubes and Wall’s Cornettos. Unilever plans to sell some brands to help cover a purchase price that would otherwise leave it impossibly leveraged. What price might they fetch?

Sales over the years have whittled back the portfolio from 56 per cent of sales in 2004 to 38 per cent, or €19.1bn, last fiscal year. Assuming ebitda of €4.3bn, on Bernstein’s numbers, and an enterprise value-to-ebitda multiple of 11 times values it at €47.3bn (£39.6bn). Throwing in a control premium of 20 to 25 per cent tops it up to £50bn.

Unilever’s gems include ice cream, accounting for 40 per cent of the category. Nestlé managed an estimated 15 times multiple when it sold its smaller ice cream business to Froneri, a joint venture with private equity group PAI Partners, for $4bn in 2020. Either way, it could expect a healthy return on the $326m it paid for Ben & Jerry’s in 2000 — and rid itself of the occasional political thorniness too.

Where might it shop its wares? A £50bn sticker price would put the division out of reach of all but the biggest consumer product companies. A piecemeal sale would attract trade and private equity buyers. These are stable cash flows and growth is not as shoddy as is sometimes painted. Last year’s underlying sales growth was 1.3 per cent, half the level of 2018 but a whisker ahead of beauty and personal care. Operating margins, at 14.4 per cent, best home care’s 11.9 per cent.

More can be squeezed out. Unilever, surprisingly for an avowedly purpose-driven company, has only flirted at the edges with plant-based foods, alternative dairy and other such increasingly popular (and profitable) fare. This tuck shop may have languished but its goods are far from stale.

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