Activist investor Nelson Peltz takes stake in Unilever
LONDON — Trian Fund Management, the activist hedge fund run by Nelson Peltz, has acquired a stake in Unilever, according to people familiar with the matter, adding pressure on the packaged food and consumer goods giant following its bid $68 billion miss for GlaxoSmithKline’s consumer healthcare business.
The size of the stake could not be learned. Trian started buying Unilever shares long before its bids for the GSK unit surfaced earlier this month, one of the people said.
Unilever shares have been under pressure in recent months as it struggled to boost volumes. Analysts say it has underperformed some rivals during the Covid-19 pandemic in areas such as hygiene and packaged food and hasn’t launched any successful innovations for some time.
The company has faced strong opposition from investors to its plan to buy GSK’s healthcare business, with analysts pointing to its mixed track record on several other major acquisitions. Critics said the London-based company was paying too much for the GSK business and should focus on fixing its existing categories rather than new categories in which it had little experience.
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Trian’s stake in Unilever has already been reported by the Financial Times.
Late last year, Unilever chief executive Alan Jope launched the effort to buy the consumer healthcare business that GSK said it was preparing to spin off. Unilever said the deal would be part of an effort to push health, beauty and hygiene products further away from slower-growing food brands. The supply and pivot to health represented Unilever’s biggest strategic shift in years. He said at the time that any major acquisition would likely be accompanied by major divestments.
But the effort fizzled amid intense opposition from Unilever shareholders, while GSK held out for a better price. Jope said last week he would not lift Unilever’s latest offer, essentially putting the deal on ice. Unilever said it was committed to improving the performance of its existing brands, including through an upcoming reorganization, and pivoting its portfolio into higher-growth categories.
Some analysts and investors say Jope’s credibility took a hit from the episode.
Trian’s involvement comes a few years after the New York-based company bought Unilever rival Procter & Gamble. Peltz in 2017 narrowly won a seat on the P&G board, in what was at the time the most expensive proxy battle in US history.
Peltz has previously served on the boards of other consumer goods companies, including Oreos maker Mondelez International and Heinz. In some past activist campaigns, he has sought to break up companies, although that was not a goal in his involvement with P&G.
Analysts and investors have called on Unilever to revive its own sales growth in a manner similar to P&G’s turnaround, including divesting slower-growing brands and revolving around its core business.
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P&G, at the time of Peltz’s involvement, was struggling with intense competition, rising material costs, and its own bureaucracy. The Cincinnati-based company has since successfully upgraded consumers to higher-end versions of its products. It also ditched mass-market beauty brands and led the industry to raise prices to offset commodity costs and fatten profit margins.
More recently, P&G has benefited from strong sales gains made thanks to the pandemic, in particular thanks to higher prices. Peltz at the end of last year left the board of directors of P&G.
Unilever’s misjudgment over investor opposition to GSK’s bid drew parallels to its 2018 miscalculation of shareholder support for the Anglo-Dutch giant’s bid to consolidate its Rotterdam headquarters . The company, which had operated joint headquarters there and in London, did an about-face after fierce opposition. Shortly thereafter, then-CEO Paul Polman stepped down, leaving the reins to Jope.
Jope, a Scotsman, managed to push through a separate corporate restructuring which instead consolidated the company’s London headquarters. Part of the rationale for consolidation was that it would make the company more agile in closing deals. Previously, according to Unilever executives, the company’s dual structure made its stock too heavy to be attractive to the owners of large companies it wanted to pursue.
GSK’s bid – a mix of shares and cash – was Jope’s first bid for a major deal and would have catapulted Unilever to become the world’s biggest vitamin owner, along with brands like Centrum and Emergen-C. . It reportedly added a slew of other drugstore staples, including Aquafresh toothpaste, Advil pain relievers, Tums indigestion remedy and Flonase allergy relief.
Analysts have criticized the deal not only for its $68 billion price tag, but also because Unilever has little experience in consumer healthcare products. Such offerings may attract tighter regulation and cannot be rolled out quickly in new markets the way less-regulated consumer goods can.
In recent months, Unilever shares have been trading not far above where they were in 2017, when the company became the target of an ultimately unsuccessful $143 billion hostile bid by Kraft Heinz.
Critics partly blame the company’s food unit, which houses brands like Ben & Jerry’s ice cream and Hellmann’s mayonnaise. For years, Unilever has faced calls to spin off or sell its entire food business. Over the past few years, the company has sold large chunks of it. In 2018, it sold its spreads unit for about $8 billion, and in November it struck a deal for about $5 billion to sell the bulk of its tea business.
Jope, who previously worked as Unilever’s head of personal care before becoming CEO in 2019, said the already growing consumer interest in health and wellbeing had been accelerated by Covid-19 and pointed out interest in exploring the category further.
Jefferies analyst Martin Deboo said he thinks Trian will push Unilever to sell food brands faster or sell or divest the unit entirely. “The strength and temperature of the debate around Unilever now looks set to go up several notches, with Trian likely to find a sympathetic audience,” Deboo said of Unilever shareholders, adding the episode would increase the pressure on.
Other large consumer products companies like P&G, Reckitt Benckiser and Colgate-Palmolive focus primarily on activities such as personal care, cleaning and consumer health. Food giant Nestlé SA – in which activist investor Dan Loeb has a stake through his hedge fund Third Point – has exposure to categories seen as more promising like coffee and pet food.
This article was published by Dow Jones Newswires