Unilever looks set to continue pursuing £50bn-plus mega-merger

Consumer goods giant Unilever has signalled it will continue pursuing a blockbuster deal to buy GlaxoSmithKline's (GSK) healthcare arm.

Unilever has already had a £50bn offer rejected, but said on Monday a deal would be a "strong strategic fit".

GSK's health products business owns brands such as Sensodyne toothpaste, Panadol and Centrum vitamins.

Unilever, maker of Marmite, PG Tips and Dove soap, says it wants a bigger slice of the health and hygiene sectors.

"The acquisition would create scale and a growth platform for the combined portfolio in the US, China and India, with further opportunities in other emerging markets," Unilever said, pointing to synergies in the oral care and vitamin supplements business.

Unilever has not said if it will sweeten its rejected offer, but according to the Bloomberg news agency the company has held talks with its banks about additional financing for a increased bid.

GSK's share price was up almost 5% on Monday morning, a sign some investors are hopeful of a higher offer. Unilever's shares fell almost 7%.

Unilever is already the third largest company on London's FTSE 100 index and is worth around £100bn. A deal would see it take over one of the biggest divisions of the FTSE 100's fifth biggest company.

GSK, which runs the healthcare operation in a joint venture with US drug maker Pfizer, has already said it wants to offload the operation.

However, management had proposed spinning it off as a standalone business listed on the stock market. GSK wants to concentrate on pharmaceuticals and vaccines.

Some activist investors have been calling for GSK chief executive Emma Walmsley to explore a potential sale as an alternative to the spin-off.

News of Unilever's interest was first reported over the weekend by the Sunday Times. That prompted the company to bring forward a strategic update, which it had planned to release later this month.

Unilever said it has "concluded that Unilever's future strategic direction lies in materially expanding its presence in health, beauty and hygiene".

It added: "The board also concluded that major acquisitions should be accompanied by the accelerated divestment of intrinsically lower growth brands and businesses."

It said GSK's consumer health division was "a highly complementary" target, with "good potential for synergies and a number of routes to build scale".

Hargreaves Lansdown analyst Laura Hoy said there is a good chance Unilever will raise its offer. "Based on Unilever's new strategic direction, which includes increased focus on growth in the health, beauty and hygiene segments, there could be another offer in the pipeline.

"The group says it will pounce on acquisition opportunities within the space, and they don't get much more appealing than this one."