One of Unilever’s biggest shareholders has said it “doesn’t make sense” for the group to retain its food business alongside its beauty, personal care and home care divisions, adding to scrutiny of the margarine-to-soap conglomerate that ousted its chief executive this week.
David Samra, partner at Artisan Capital, a top-10 shareholder in the FTSE 100 group, said Unilever should look at selling the €13.4bn-revenue food business if it would create value for shareholders, following years of smaller divestments to boost the sprawling group’s performance.
“[The division] has to stand up to scrutiny over and over again, because it doesn’t make sense to have food and other products in the same company, and food gets you a lower multiple,” Samra told the Financial Times. “If the math shows that we will get more value out of [selling it], then they should do it.”
The future of the food business will be one of the issues on the in-tray of Fernando Fernandez, described by a former colleague as a “human tornado”, who was installed as chief executive this week following the sudden removal of Hein Schumacher after just over 18 months in the role.
The group is pursuing a listing of its ice cream division and pledged under Schumacher to sell off up to £1bn in food brands, as part of a major turnaround plan aimed at focusing on higher-margin areas such as beauty. It has sold off large chunks of its food business in the past decade, including spreads and tea.
Schumacher, who headed Dutch dairy giant FrieslandCampina and worked at Kraft Heinz for more than a decade, ruled out selling the entire food business last year. Shareholders said his replacement with Fernandez, the former head of Unilever’s beauty division, reinforced the company’s pivot into beauty and home care, reviving the perennial question of whether Unilever should abandon food.
“Narrowing their focus is part of this strategic plan, and that will continue,” said Samra. “What is the cost of disentangling? That’s the math the board is running.”
If the board “started with a blank sheet of paper . . . they wouldn’t have food there”, said Sue Noffke, head of UK equities at top-15 Unilever shareholder Schroders. She added, however, that food would be “relatively small post the demerger of ice cream” and that the remaining part of the unit was important to Unilever in emerging markets.
Unilever has been slimming down in food
2014
Sells food businesses including weight-loss brand SlimFast, US pasta sauces brand Ragu & Bertolli and meat snacks Peperami.
2018
Completes the sale of its spreads business, with brands such as Flora, Country Crock and I Can’t Believe It’s Not Butter to private equity firm KKR.
2019
Sells baking and desserts business Alsa.
2022
Completes sale of its tea business to private equity firm CVC Capital Partners, which included brands like PG Tips and Lipton.
2024
Begins selling smaller and regional food brands, such as Dutch packaged food brands Unox and Zwan.
The question of whether to sell the entire food division has long been up for debate, with Unilever previously exploring selling it to fund its failed bid for GSK’s consumer health unit, now called Haleon.
But shareholders said the cost of disentangling the division’s sprawling supply chains from the rest of the group would be a deterrent to hiving it off. The investors said the board had their support in the leadership change and strategic direction.
Artisan Capital, which led a successful activist campaign at French consumer group Danone and has called for a break-up of German conglomerate Bayer, said it was not an activist at Unilever and was “100 per cent behind” the chair.
Bankers and analysts have long speculated that Unilever might pursue takeovers in the fragmented consumer health industry, potentially buying one of the consumer businesses spun off by pharmaceutical companies such as Johnson & Johnson or Sanofi.
But in calls to investors this week Meakins said the company would not be embarking on major dealmaking in the near future. Noffke told the FT that the chair had said there was no plan for major M&A, just “bolt-ons, where it made sense”.
The board’s decision to remove Schumacher, which people familiar with the matter said was unanimous, shone a spotlight on Meakins and the lengths the chair of two years is willing to go to drive forward Unilever’s turnaround.
Schumacher, who was in the US on Tuesday for shareholder meetings, was forced to cancel his appointments.
One former Unilever executive said Meakins, who is also chair of FTSE 100 company Compass Group and the former chief of building products group Wolseley, was “hard as nails”.
“People underestimate Ian Meakins at their cost. He’s a tough old boot chairman,” said a consultant who works with the company, adding that Meakins and Fernandez had a very close relationship. “He never chose Hein, but he chose Fernando. This is Ian placing his bet on a CEO he has chosen.”
Unilever declined to comment.
Analysts and people close to the company identified Unilever’s capital markets event in November as the day that clinched Fernandez’s ascent to the top job. The Argentine has worked at Unilever for almost four decades in Latin America, Asia and in management. He had outshone his boss since becoming CFO last January, the people said.
Veteran fund manager and shareholder Terry Smith told investors this week that he had nothing against Schumacher, who was “doing a fine job”. But he said Fernandez “really stood out” and was “basically dynamite”.
Shareholders and people close to the company said that while unexpected, the board’s abrupt ousting of Schumacher and decisive bet on Fernandez signalled a more ruthless approach from the group.
“We see quite a lot of pushback from investors on UK companies as being a bit dull, lacklustre, lacking in sharp elbows, needing to have activist interest to kind of get on with doing the right thing,” said Noffke.
“And here’s a company that’s kind of doing it for itself.”
