Should I buy Haleon shares to double my money, tax-free?

Haleon (LSE:HLN) was demerged from GSK on 18 July. It’s one of the biggest consumer healthcare companies in the world, owning popular brands such as Panadol, Sensodyne, Advil and Centrum. I believe that Haleon shares are underpriced at the 308p they’ve been hovering around this week.

I already hold some of the company’s shares in my Stocks and Shares ISA and am considering buying more.

A strong takeover candidate

In January this year, Unilever bid £50bn for what is now Haleon when it was still part of GSK. Haleon’s current market valuation is just £28bn. I believe this to be an anomaly and that several companies and private equity buyers will be running their slide rule over Haleon. Unilever is probably still one of them. Reckitt has been touted as another potential domestic bidder.

The more the British pound weakens against the US dollar, the cheaper a takeover becomes for an American buyer. For example, American giant Johnson and Johnson, valued at £375bn, could snap up Haleon without blinking.

Fending off a bid now that Haleon is separately listed would be a lot harder for the company than when it was still part of GSK.

The logic of a takeover is that greater size enables a company to lower its costs, widen its margins and increase its profits.

Haleon’s product portfolio offers huge potential to a buyer, especially in the growth markets of India and China.

Haleon’s latest trading report

Haleon released a strong trading update for the first six months of 2022 this week, which showed that revenues increased 13.4% and e-commerce sales increased in the “high teens”. This is well ahead of inflation and indicates that Haleon can raise its prices without impacting on performance.

Sales were quite evenly spread across the globe, which provides an element of safety to the business and my investment in it. If one region faces a downturn, another can often compensate with higher sales.

At the time of Unilever’s takeover bid in January, GSK’s CEO Emma Walmsley insisted Haleon would have a brighter future on its own. Based on this trading report, perhaps this is true, in which case it’s another reason why the shares look cheap and are a long-term hold for me.

Unilever also reported strong trading this week, which gives it more firepower for acquisitions.

Potential risk

Haleon has £10bn of debt, but analysts believe this to be manageable for such a reliable business. It would probably affect the price a bidder would pay, however.

Watchlist

I am watching the Haleon share price and market valuation closely. If the company’s value falls to £25bn, i.e half the £50bn Unilever bid for it in January, then I will buy more shares as I could double my money from a takeover at the same price. I believe a takeover could happen within three years.

With the shares held in my Stocks and Shares ISA, any capital gain would be tax-free. I am definitely holding onto the Haleon shares I already own in the hope of “all good things come to those who wait”, as the saying goes. However, I’m fully aware there is always the possibility that a bid does not materialise, but there’s still a place for it in my long-term portfolio regardless!