Galvanised by Kraft, Unilever keeps shareholders sweet with cash
Unilever promised shareholders a multi-billion euro rewards package on Thursday after February's $143-billion takeover offer from Kraft Heinz jolted it into a corporate makeover aimed at proving it can go it alone.
The maker of Dove soap and Knorr soup said it would speed up cost savings, sell its shrinking margarines business and decide whether to scrap its dual Anglo-Dutch listing, which Unilever said would make it easier to do big acquisitions.
Shareholders, some of whom where unhappy that Unilever so swiftly spurned the approach by US rival Kraft, will also get a 5 billion euros ($5.3 billion) share buyback, the first since 2008, funded in part by a targeted rise in debt levels, and a 12 per cent dividend increase this year.
Unilever, one of Europe's biggest blue-chip stocks, called the Kraft episode a "trigger moment" to deeply review its business, as global packaged goods makers face slowing growth and more competition from start-ups exploiting evolving tastes for natural and healthy products.
"There is no doubt that however ... opportunistic it (the Kraft approach) was, it did raise expectations," Chief Executive Paul Polman said. "We are absolutely determined to use it as an opportunity to place Unilever on an even stronger footing." Unilever's London-listed shares, which have held onto the gains made by the Kraft bid as shareholders bet it would spur improved performance, closed up 1 percent at 39.78 pounds, while the FTSE 100 was down 0.3 per cent.
"They're not stretching here, and nor should they. They're in a very strong position and this is hopefully a sign they're going to be a bit leaner and more shareholder-focused," said GAM fund manager Ali Miremadi, who manages two worldwide equity funds that are 2.5 per cent invested in Unilever.
Unilever should be able to deliver the premium Kraft was offering or more over the next four or five years, he added.
Unilever set a 20 per cent underlying operating margin target for 2020, up from 16.4 per cent in 2016, fuelled by increased cost savings, which Goldman Sachs analysts said suggested 90 basis points of expansion per year, up from a prior goal of 40 to 80 points. But unlike the previous target, the new one excludes restructuring charges, which are seen totalling ^3.5 billion over the period.
Unilever is now aiming for ^6 billion of savings by 2019, up from ^4 billion and said it would double savings within brand and marketing to ^2 billion.