Time to use that lever
In February last year, when Kraft Heinz made its bid for Unilever, the maker of Magnum ice cream and Dove soap, made it clear the US food giant stood no chance, effectively letting Kraft Heinz know exactly where to stick its “acquire, slash costs and repeat” routine.
Kraft Heinz, backed by corporate raiders Warren Buffett and private equity firm 3G, backed off, tail between its legs.
But the overture put pressure on Unilever, whose operating profit margins were trailing most of its rivals, to make bold moves to accelerate growth and cut costs.
It served as a wake-up call for the Anglo-dutch giant to strengthen its defences.
Nearly 18 months later, Unilever has offloaded its margarine and butter business to private equity giant KKR for €6.8bn and announced two multibillion-pound share buyback programmes.
It’s working with Egon Zehnder, a global executive search firm, to find a successor for CEO Paul Polman.
And in March the company announced it is choosing Rotterdam over London for its HQ. Remember that for nearly a century, the company has maintained a dual-headed structure, with listings on the London, Amsterdam and New York stock exchanges.
For the sake of brevity, I won’t go into Unilever’s likely ejection from the FTSE 100 index (which could hit its What I want to take to the floor is whether the string of measures put in place by Unilever since fending off the Kraft Heinz approach really has made it less of a sitting duck.
The company, which employs 169,000 people worldwide, this week revealed a drop in sales and profits in the first half of 2018. This was largely a result of a Brazilian transport strike and weak pricing.
On the positive side, underlying operating margins rose 0.8 percentage points to 18.6% and Polman is adamant the company will achieve its annual 3%-5% growth target.
In fact, he’s shrugged off criticism over the worse-than-expected performance.
“When we had a lot of pricing [power], analysts were worried about us not having volume. Now we have four quarters in a row of continuous volume expansion [and] some analysts are worried about our pricing power.
“I just wonder if they are always worried,” Polman, who has run Unilever since January 2009, told CNBC’S Willem Marx.
For a company that not long ago was under siege (albeit briefly; the Kraft Heinz bid fell apart within three days of becoming public),
Unilever must be careful to avoid complacency or cockiness — which is how it became a takeover target in the first place.
Most consumer goods groups aren’t having a great time — there are difficulties in emerging markets
(where Unilever makes 60% of its sales), pressures on the consumer in developed regions and circling activist investors, as in the case of Nestlé and Danone.
Unilever would do well to start pulling some levers, like divesting lacklustre tea brands or doing a big, fat acquisition to boost shareholder returns and deliver major cost savings. Colgate-palmolive, maybe?
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