You can never please everyone, but at Unilever they probably hoped for a little more enthusiasm about their grand takeover plan. “This is a very bad deal,” he said. And: “Please don’t do it.”
Stock market analysts reacted negatively to the mega-acquisition that Unilever wants to make in comments Monday morning. On Saturday it was leaked that the food giant has offered 50 billion pounds (60 billion euros) for the consumer branch of the British GSK. This would make Unilever the owner of toothpastes such as Aquafresh and Sensodyne and medicines such as Advil and Otrivin. “Unusually harsh terms” were used by the analysts, according to financial news agency Bloomberg.
Investors also do not like it: the price of Unilever, a British company with roots in Rotterdam, plunged by 7 percent on Monday.
Incidentally, it was already clear that GSK itself does not like it either, the company thinks the price is too low. Bloomberg reported Monday that Unilever would consider a higher offer.
Hurry Strategy Update
You could also conclude that Unilever has not yet given up from the hasty strategy update who released it Monday morning. Unilever wants to expand in ‘health, beauty in hygiene’, it writes. The latter two categories are actually not new, as Unilever already referred to in its annual report for 2020. ‘Health’, which includes medicines, for example, was not yet mentioned as a growth category at the time.
In the same update, Unilever, known in the Netherlands for brands such as Calvé, Knorr and Dove, explains why the acquisition is a good idea. It is a ‘strategic match’: almost half of GSK’s consumer business consists of products that Unilever already has in-house: toothpaste (‘oral care’) and vitamins, minerals and supplements. The acquisition would also provide “a growth platform” in the United States, China and India.
Analysts see it differently. They mainly point to the largest category of products from Unilever’s acquisition prey: medicines that you can buy at the drugstore, such as painkillers. Unilever has little experience with this. “Unilever would pay a hefty takeover premium,” says Kepler Cheuvreux analyst Karel Zoete. “Then the question is: why should these brands be worth more to Unilever than to the selling party?” Zoete finds that “not obvious” for the medicines.
Another concern is more general: such a large acquisition carries risks. 60 billion euros is a lot of money – and that seems to have to increase even further. It would be Unilever’s largest acquisition ever. By way of comparison, Unilever’s annual turnover is around 50 billion euros. The company will be heavily in debt. And then it should also be possible to successfully integrate that enormous new part into the rest of the group.
Stock price remains far behind
But Unilever is under pressure to move to come. The share price lags far behind that of major competitors such as Nestlé (Maggi, Nespresso, KitKat) and Procter & Gamble (Always, Ariel, Oral B). Since Jope took office on January 1, 2019, Nestlé’s share price has increased by about 50 percent, Procter & Gamble’s by about 75 percent, but Unilever’s has not grown. In fact, it is even a fraction lower.
The Scottish Jope took over three years ago from Paul Polman, the Dutchman who radically changed Unilever’s strategy after he took office in 2009 by making sustainability a central part. Initially, this led to great skepticism among investors, but his approach gradually gained popularity, including among (some of the) shareholders.
His successor has more or less held on to the lasting ideals, but has not done much new. No major takeovers, no radical changes of course. When he spoke out, it was often about a typical Unilever topic: purpose. He believes that all brands should ultimately have such a mission or higher goal. Frequently mentioned examples are Dove, which aims to counteract girls’ insecurity by showing ‘real’ women’s bodies in advertisements. He eventually wants to get rid of brands without purpose, said Jope.
But that is starting to get on some of the shareholders’ nerves. Last week Jope received fierce criticism from Fundsmith, a major investor in Unilever. In a letter to investors, founder Terry Smith wrote that the company is “obsessed” with sustainability. As an example, he highlighted mayonnaise brand Hellmann’s, whose mission is to combat food waste. Nonsense, Smith thinks. Consumers do understand the purpose of a brand like Hellmann’s. “Spoiler alert – salads and sandwiches.”
It’s not that investors are against attention to sustainability – an increasing group nowadays makes noise when companies do too little about it. In that respect, Unilever is leading the way. At the same time, investors also simply want to see returns. So it’s not that Smith is for food waste, writes a columnist from the British business newspaper Financial Times. He worries that Unilever’s emphasis on purpose is a smokescreen that hides the fact that the company is not being run properly. “Unilever is simply doing worse than many listed competitors in terms of share price,” says Joost van Beek, analyst at InsingerGilissen. “Many analysts and investors have doubts about how the growth strategy is being executed.”
In Monday morning’s strategy update, Unilever appears to want to cater to skeptical investors. The word sustainability or purpose does not appear in it. But the course is not entirely new either. Unilever has been focusing more and more on personal care in recent years. For example, it bought luxury cosmetics brands Paula’s Choice (2021) and Hourglass (2017). Unilever’s food division, on the other hand, shrank considerably, mainly due to the sale of the spreads division (the margarines) in 2017 to private equity party KKR and the tea branch, which also went to CVC Capital Partners last year, also private equity.
Even less Dutch
The financial results seem to justify this strategic choice: personal care accounted for 41 percent of Unilever’s turnover in 2020, but more than half of the operating profit. Food was less lucrative: at 38 percent of sales, it accounted for a third of profits.
Unilever promised Monday that it will divest even more brands that show undergrowth in the near future. “That will also be mainly on the food side,” analyst Van Beek expects. “In that corner they also have more local and regional brands that you can’t roll out worldwide. That’s less attractive. You don’t want to be a colorful collection of activities.”
With even fewer food brands, Unilever, still a Dutch-British company until 2020, would become a little less Dutch. The food branch has its roots in Rotterdam: the company was founded in 1930 after a merger between the Dutch Margarie Union and the British soap manufacturer Lever Brothers. Should the purchase of GSK go through, Unilever will become even more British.
It is now clear that investors do not necessarily see this. But Unilever has even more in store in the near future: later this month it will present a ‘major initiative to improve our performance’. It is still unclear what that is – and also whether it can fuel investor enthusiasm.
Purchased
Paula’s Choice
An American cosmetics brand that guards against the use of scientifically proven ingredients and that turns away from cosmetic jargon.
Division Personal care
onnit
An American manufacturer of natural nutritional supplements.
Division Health
SmartyPants Vitamins
An American manufacturer of nutritional supplements.
Division Health
Liquid IV
An American maker of hydrating drinks.
Division Health
GSK Healthcare India
Health division of pharmaceutical company GSK in India.
Division Foodstuffs
Brands among others Horlicks, a popular breakfast drink in India
graze
UK’s best known seller of healthy snacks.
Division Foodstuffs
The Vegetarian Butcher
Food manufacturer that makes meat substitute products.
Division Foodstuffs
Tazo and Pukka
American and British tea brand.
Division Foodstuffs
hourglass
A vegan cosmetics brand.
Division Personal care
Dollar Shave Club
An American maker of personal care products.
Division Personal care
Sara Lee
Sara Lee’s Nursing Branch.
Division Personal care
Brands like Zwitsal, product, Zendium, Sanex
Sold
tea division
Global tea division, Ekaterra, is going to US investor CVC Capital for 4.5 billion euros.
Division Foodstuffs
Brands including Lipton, tazo, Pukka
Bertollic
Bertolli, maker of pasta sauce and olive oil, to Enrico-Glasbest.
Division Foodstuffs
Bressler
Bressler, the Chilean counterpart of ice cream maker Ola.
Division Foodstuffs
Soap Division
The Central American Soap Division
Division Personal care.
Brands Xtra, surf, unox
Alsa
A French manufacturer of baking products.
Division Foodstuffs
Brands Alsa
Spread division
Unilever Spreads goes for 6.8 billion euros to investor KKR.
Division Foodstuffs
Brands BlueBand, Becel, Zeeland girl
AdeS
Soy drink maker AdeS is going to Coca-Cola for more than half a billion euros.
Division Foodstuffs
slim fast
Diet food and drink maker.
Division foodstuffs
Meat Snacks Department
The department that makes snacks from meat.
Division Foodstuffs
Brands BiFi
Wish Bone
A major American maker of dressings.
Division Foodstuffs
skippy
US’s second most popular peanut butter.
Division Foodstuffs
Sanex
Brand of skin care products goes to Colgate Palmolive.
Division Personal care
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