JOPE ON THE ROPES
Now top investor Terry Smith is bashing Unilever’s boss over failed £50billion deal
Terry Smith has taken a second pop at Unilever in as many weeks, accusing its bosses of playing ‘gin rummy management’.
The stockpicker, who looks after more than £33bn of savers’ money through his firm Fundsmith, said he was ‘thankful’ that the company’s £50bn bid for the consumer arm of GSK was now ‘dead’.
The fund manager said the whole sorry saga, which entailed the consumer goods giant being repeatedly rebuffed by GSK, was a ‘near-death’ experience, raising serious questions over the quality of the Marmite-maker’s management, including chief executive Alan Jope.
In a devastating analysis, which Smith titled a ‘post-mortem’ into the flopped deal, he said bosses should consider whether they – rather than the business – were the problem.
Borrowing a phrase from the legendary US investor, he said: ‘The management seems to be playing what Warren Buffett lampoons as “gin rummy” management.’ He added that they should consider whether the problem was not with the hand of cards but with the player, in a dig at Unilever’s bosses.
His criticism came after the business made three separate bids to acquire GSK’s consumer arm, which makes Aquafresh toothpaste and Panadol painkillers.
UNILeVer said the move was part of its plan to move into selling more beauty products, while potentially selling its food and refreshment business which includes brands such as Marmite and Hellmann’s mayonnaise.
GSK had been pushing for more money, but on Wednesday Unilever said it was drawing the line at £50bn, effectively abandoning the bid.
Smith, however, suggested the deal should never have got that far. The 68-year-old, who is one of the best-known names in Britain’s investment industry, criticised Unilever for failing to show any analysis of how it intended to make a strong return on its £50bn investment.
On Smith’s estimates, the company would have needed to significantly improve the performance of GSK Consumer to avoid destroying the value of the cash it pumped in. And getting Unilever to disclose its calculations ‘was like a dentist pulling a back tooth’, he added, claiming the firm had a ‘penchant for corporate gobbledegook’.
Smith, who is based in Mauritius, also raised concerns that Unilever’s decision to switch its focus to beauty was misplaced.
Few conglomerates had achieved success in the sector, he said, pointing to Proctor & Gamble’s move to assemble a bunch of beauty brands before selling them to US giant, Coty.
His comments come as Bruno Monteyne, a Bernstein analyst, questioned whether there would have to be management changes at the company after the failed bid.
Monteyne said investors had expressed disbelief over the bid adding that it wreaked of desperation and he believes there will be changes at board level over the next few months.
He added: ‘Given the performance of the business over recent years; given this sudden change in strategy and the shareholder refusal to back one of the key pieces of the plan, we think management has lost credibility. We would expect management and board change to be the key topics for the next three to six months.’
But Smith’s issues with Unilever go back much further than its recent failed attempt to buy GSK, as he pointed out it had performed much more poorly than its rivals over the past decade.
Lashing out at the company’s communications, he said: ‘Against the background of this miserable performance the company did not even attempt to contact us for the first eight years we were shareholders.’
It was the second outburst from Smith in as many weeks.
Last week he blasted the company for being ‘obsessed’ with its sustainability credentials – to the detriment of its financial performance. The stock-picker said Unilever had ‘lost the plot’ over trying to define some of its brands like Hellmann’s mayonnaise.
In his annual letter to investors in his Fundsmith equity fund, Smith said: ‘A company which feels it has to define the purpose of Hellmann’s mayonto naise has clearly lost the plot. ‘The brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert – salads and sandwiches).’
He also blasted its refusal to supply Ben & Jerry’s ice cream in the West Bank, as sales ‘in the Occupied Palestinian Territory’ were ‘inconsistent with our values’. Smith said: ‘Unilever seems be labouring under the weight of a management obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.’
But rival fund managers disagreed with Smith’s criticism.
John William Olsen, a portfolio manager at M&G Investments, said the firm was ‘focused on running the business sustainability and explaining its strategy – something that should be demanded from any company’.
And one City investor suggested that Smith may have been using Unilever’s focus on sustainability to excuse its poor performance, when actually there were other reasons why the company was not a very canny investment.
These included features such as its lack of investment in ecommerce and direct-to-consumer businesses, the investor said.
Playing what Warren Buffett lampoons as “gin rummy” management
The firm has a penchant for corporate gobbledegook