Citing financial discipline is an elegant way for Chief Executive Officer Alan Jope to extract himself from a situation that alarmed many investors. Unilever lost about 10 billion pounds off its market capitalisation between confirming the approach on Monday and its U-turn.
Although the deal was almost universally unpopular, it had merits: The acquisition would have taken Unilever into the fast-growing business of over-the-counter medicines. GSK's Voltaren pain relievers and Centrum vitamins could have been easily pumped through Unilever's distribution network, particularly in emerging markets. Disposing of food and refreshments at the same time would have rid Jope of more sluggish units.
Now he has to achieve a portfolio revamp alone. Jope has already acknowledged that Unilever's current strategy is not working, and that he would like to shift the company's focus toward consumer healthcare.
This will be a lot harder without the GSK brands and with its credibility among investors badly damaged.
As for the next options, Jope could look to other targets. Reckitt Benckiser Group Plc, the British producer of health, hygiene and nutrition products, is the obvious alternative. But with a market capitalisation of about 45 billion pounds, assuming a typical 30% takeover premium, Reckitt would cost about 60 billion pounds.
Yet this is the price GSK was mooted to have had in mind, and it was too rich for Unilever.
What is more, Reckitt has already done a good job of extracting value from its brands, including Nurofen, Mucinex and Gaviscon. Unilever arguably had more opportunity with GSK's consumer-health brands, such as Sensodyne toothpaste, which perhaps were constrained within a science-led pharma company.
Colgate-Palmolive Co., Johnson and Johnson's consumer health business and that of Sanofi SA are further options. But given that Unilever's investors baulked at GSK healthcare, it is not clear Jope would have the backing for another big deal.
He could look to make piecemeal acquisitions and disposals, adding businesses in health and beauty and offloading the food units. Think more Hourglass Cosmetics and less Ben and Jerry's. But investors are already concerned about Unilever's slow pace of change, and this approach would do little to alter that.
A better course of action would be to demerge or to sell the food and refreshment business entirely. On a simple sum-of-the-parts basis, Unilever's beauty and home business could be worth around 123 billion euros ($140 billion).
Its food unit on the other hand, which includes Magnum ice cream and Hellmann's mayonnaise, could be worth about 53 billion euros. Even assuming 8-10 billion euros of value is lost from transaction fees and extra costs, the total gained from offloading food would still be ahead of Unilever's current enterprise value of fewer than 140 billion euros. The idea is worth exploring.
Plus, each division would benefit from a greater management focus. That would help to address criticisms, including from fund manager Terry Smith, that Unilever has an operational problem as well as a structural one.
A private equity group may be willing to take the low-growth but cash-generative food business off its hands. That would give Unilever more financial firepower for another opportunity like GSK's consumer health business.
As I have argued before, if Jope does not take an axe to his empire, someone else, such as an activist investor, may have a go.
The CEO must convince investors that Unilever's future is in consumer health — and that getting there will require more than disposals by degrees and bolt-on acquisitions. Otherwise, grinding out growth in a more difficult consumer environment, without much strategic room to maneuver, will not be any fun.