Unilever could lose its credit rating with the purchase of the consumer arm of GSK | Unilever

Unilever has been warned that the purchase of GlaxoSmithKline’s consumer products arm is likely to significantly inflate its leverage and could trigger a “multi-notch downgrade” in its credit rating.

Rating agency Fitch said Unilever would not be able to maintain its current A rating with a stable outlook beyond 2024-25, and would not be downgraded to BBB, if it were to acquire the products division consumer goods from GSK or another large company.

Shares of Unilever, which owns brands such as Dove soap, Marmite and Ben and Jerry’s ice cream, have fallen more than 10% since news broke of its £50billion bid bid. the pharmaceutical company for the consumer products arm of the pharmaceutical company.

Fitch calculated that Unilever’s £50 billion bid for the GSK division would have seen the company’s net debt rise to levels equivalent to 4.5 or 5 times its pre-tax profit after the deal was finalized. deal in 2022. The agency said it plans to cut a company’s rating from A once debt crosses the threshold by 3.3 times pre-tax profit.

Unilever will have to increase its offer in order to get GSK’s approval, according to Fitch, which means an even higher level of debt.

However, Fitch said the extent of Unilever’s credit rating downgrade would depend on other actions the company takes, including dividends offered to investors, whether it acquired other businesses and whether it sells. some of its existing activities.

Unilever chief executive Alan Jope has pledged to expand the company’s health, beauty and hygiene business and said this will be funded by selling some of its slower growing businesses, such than food brands, rather than taking on more debt.

GSK plans to spin off its consumer healthcare business – which owns brands such as pain relief Panadol and toothpaste Sensodyne – by the middle of this year. The spin-off will be chaired by former Tesco boss Sir Dave Lewis, and analysts said GSK should wait for a higher bid.

Despite its warning, Fitch said it viewed “GSK’s operations as complementary to those of Unilever” and added that the acquisition would boost Unilever’s current profit margin.

According to Fitch’s analysis, the deal would allow Unilever to bolster its fast-growing line of vitamin products and supplements, while also allowing it to begin selling over-the-counter drugs through GSK’s relief product line. pain and the treatment of digestive and respiratory disorders. problems.

Fitch said any deal between the consumer goods company and GSK “carried a high risk of integration” because Marmite’s owner would have to learn how to distribute over-the-counter drugs.

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