Speculation mounts that top investor could push for break-up of Unilever

Consumer goods giant Unilever could be forced into a radical shake-up by aggressive investors pushing for a revival of the Dove and Marmite maker’s fortunes, City insiders say. 

The FTSE100 group is seen by bankers as ripe for a break-up that could double its sluggish share price. Veteran US activist Nelson Peltz has been named in the City as one of those who may pressure the board to hive off parts of the firm to boost shares. 

Peltz recently made more than $1billion (£750million) after triggering a campaign against Unilever’s rival Procter & Gamble, and is said to want a new target. 

A sign of the times: A drop in Unilever’s shares of almost 10 per cent in the past two months has heightened talk that it will become the next prey for Peltz or another powerful agitator

A drop in Unilever’s shares of almost 10 per cent in the past two months, knocking £11billion off its value, has heightened talk among City experts that it will become the next prey for Peltz or another powerful agitator. 

They said Unilever could ‘easily’ come under pressure to boost its stock value rapidly by splitting the business or selling off fast-growing divisions in developing regions such as India and Indonesia. The declining share price has coincided with a frenzy of activity among activist investors, who publicly apply pressure on boards to change or accelerate their strategies.

Last week, Scottish energy supplier SSE came under pressure to break up its business after New York-based activist investor Elliott Management took a stake. The assault made SSE the second FTSE100 firm in Elliott’s sights in recent months after it targeted pharmaceutical giant GlaxoSmithKline. 

Three weeks ago, Rolls-Royce’s second-largest stakeholder, Causeway Capital Management, demanded it ‘refresh’ its board as the aeronautical giant struggles to emerge from the pandemic. 

City sources contacted by The Mail on Sunday said the slide in Unilever’s share price reflected impatience over a promised rejuvenation of the business under Alan Jope, who succeeded Paul Polman at the start of 2019. 

Analysts at Exane BNP Paribas said in a report circulated among the bank’s clients that Unilever makes a compelling target for powerful activists, who may push for a break-up. 

BNP’s Jeff Stent said separating off the company’s ‘developing’ regions, which include India and Nigeria, would make a ‘good deal of sense’, potentially doubling the current £39.18 share price. Barclays analysts said they could ‘easily’ see Unilever attracting the attention of powerful activists. 

Barclays’ Warren Ackerman said the group was now ‘twice as cheap’ as it was when Warren Buffett’s Kraft Heinz tried to buy it in 2017. His analysis was based on comparing the profitability of the group’s individual divisions with its major competitors. 

Ackerman described the valuation of the Hindustan Unilever business – the Indian division which is easy to value because it has a separate listing on the Bombay Stock Exchange – as ‘eye-watering’ by comparison. 

Unilever’s stake in the Indian subsidiary makes up more than a third of the group’s entire value – despite the Indian business generating less than a fifth of sales. 

Trian Partners, run by Peltz, is said to be on the hunt for targets having slashed its stake in Procter & Gamble. In 2017, Peltz battled his way on to the P&G board – a fight he almost lost but for a recount of votes and months of wrangling – to force the firm to streamline its business. 

He built his stake to more than $4.5billion – by far Trian’s largest investment – but began selling big tranches in May last year, and last month announced his departure from the P&G board. 

Bruno Monteyne, an analyst at stockbroker Bernstein, identified Unilever to be among Peltz’s possible targets alongside Unilever’s rival Reckitt, and Europe’s Henkel and Danone, and said Peltz may even push for a merger between PepsiCo and Mondelez, in which he also has a stake. 

Monteyne said the speculation pointed to ‘dissatisfaction’ among investors about the ‘American model’ on which Unilever was run. He said the firm needed to pull back from stringent profit margin targets and invest for the long term to grow market share and innovate. He added: ‘You can’t just carry on selling the same mayo or ice-cream you sold 15 years ago.’ 

Chief executive Jope has seen his plans to reinvigorate Unilever hampered by cost inflation and missed forecasts. 

Private equity firms are preparing bids for the group’s tea brands, including PG Tips and Lipton Ice Tea, which are up for sale for a mooted £4billion as part of Jope’s business plan. 

One source said selling the tea brands was ‘fiercely complicated’ but involved only a fraction of the complexity of a more deep rooted overhaul.

This post first appeared on Dailymail.co.uk