Unilever’s purchase of GSK has come under BSEC's scanner

Unilever’s acquisition of listed GlaxoSmithKline Bangladesh’s 82 per cent stake has now run into a spot of trouble with the Bangladesh Securities and Exchange Commission, five months after the completion of the transaction.

The transaction pertained to the acquisition of GSK’s health food and oral healthcare business and it did not involve the British company’s pharmaceuticals business.

“It is believed that a significant part of its net identifiable assets was related to the production and distribution of pharmaceutical product,” read the two-page letter from the securities regulator to the chairman and managing director of GSK dated November 11.

The purported change in ownership was allegedly related to a significant discontinuance of a significant business segment, i.e. the pharmaceutical business of GSK Bangladesh. 

“It appears to the commission that the company failed to make “adequate and timely disclosure” about the business acquisition, the discontinuance of the core business segment, and the resultant profitability and cash flow implications of the company in the long-term,” the letter read.

Discontinuance of the business segment is expected to cause significant loss in the fair value of the asset constituting the discontinued operation, which GSK failed to articulate properly, said the Bangladesh Securities and Exchange Commission.

For instance, the annual report for the 2018 financial year reported that GSK’s property, plant and equipment declined from Tk 69.4 crore in 2017 to Tk 11.4 crore in 2018. 

“This raises an important question on the nature of the productive capacity of the company after the ownership change. The annual report didn't make adequate disclosure of its rapidly changing business model and related portfolios of brands and products. This is considered misleading.”

Minority shareholders have 18 per cent stakes in GSK Bangladesh.

After the ownership change, many intangible assets such as brand name, trademarks and others may also discontinue. 

If so, this would significantly influence long-term cash flows of the enterprise and thus the interest of the minority shareholders.

“We find no timely disclosures on these critical considerations in the annual reports or other management communications to shareholders.”

Unilever bought each share of GSK at Tk 2,046.3 and the total value of the transaction stood at Tk 2,020.8 crore, making it the largest transaction by a single company on the Dhaka bourse.

The BSEC also raised issues about GSK Bangladesh’s name change to Unilever Consumer Care in July.

The company disclosed nothing about the underlying intangibles of GSK Bangladesh, it said.

“What would happen to critical brand names that have prevailed for decades in the country? How would the new products, if any, be different under the Unilever Consumer Care? What would be their cash flow implications for shareholders of Unilever Consumer Care Limited?”

The transaction involved Setfirst and Unilever Overseas Holdings, two entities incorporated outside of Bangladesh.

“The sale essentially involved cross-border capital flow. What is the tax implication of this transaction? How was it reported to related regulatory bodies including the National Board of Revenue (NBR) and Bangladesh Financial Intelligence Unit (BFIU)?”

The commission received no disclosure to this end, according to the letter.

Subsequently, the BSEC sought an explanation from the company for the five queries within 30 days.

Contacted, Unilever skirted around the issues brought up by the BSEC.

“Unilever will focus to build a profitable and sustainable nutrition business in Bangladesh and support the government’s national agenda to combat malnutrition in all its forms,” it said in a statement to Dhaka Tribune.