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“Should Unilever eventually succeed with an offer, an acquisition of this business would be consistent with its stated strategy – increasing exposure to high growth, higher margin health, beauty and hygiene products. GSK’s consumer business currently has strong positions in the toothpaste and vitamin markets so there is certainly a fit there for Unilever.

“However, if the acquisition was financed with circa 80% debt and 20% equity it would be concerning as the company’s debt pile would begin to stack high. In the short term, the acquisition would be far less enhancing to the value of the business than a share buyback of a similar scale. Unilever could control this debt by following through with a subsequent sale of its remaining food businesses. This would be good strategically but materially dilutive.

“Initial investor reaction demonstrates Unilever’s lack of management credibility. Unilever’s management have not demonstrated the ability to consistently grow both sales and margins and as such are now turning to large scale inorganic growth to do so. However, there is not much faith that they will be able to do this with a larger, more diverse range of products. Given vocal investor concern of late and Unilever’s share price reaction this morning, this could prevent a higher offer from materialising.

“Unilever is not an expensive stock trading on 16.5x this year’s expected earnings – a substantial discount to the wider consumer staples category. However input cost pressure and lower disposable income in many markets will make 2022 a difficult year for the company, with GSK’s consumer business or not.”