Hedge fund manager Nelson Peltz joins Unilever

Dusseldorf, London Unilever stock moves very little in normal times. But in the past few days, she has had a real roller coaster ride: On Monday, the price of the consumer goods giant rose by up to eight percent – more than it has been for a year and a half. Last week, the value of the paper had fallen to a similarly low level within a day.

The trigger for the recent price jump is the entry of the activist investor Nelson Peltz into Unilever. His New York hedge fund Trian Partners has acquired a stake in the British firm, the Financial Times first reported on Sunday. The exact amount is not known, the parties involved did not want to comment on it.

Peltz will increase the pressure on Unilever and its controversial CEO Alan Jope. The Briton, who has been leading the group since 2019, urgently needs to find a new strategy and transform the group into a more promising company.

The sales of Unilever, whose range of brands with food (Knorr, Pfanni), cosmetics (Axe, Dove) and cleaning agents (Coral, Domestos) covers the entire spectrum in the consumer goods market, have been weak for years. The share price has also developed worse than that of the competition.

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Last week, Jope tried to break free with a mega deal. Unilever offered around 50 billion pounds – the equivalent of around 60 billion euros – for the consumer goods division of the pharmaceutical giant Glaxo-Smithkline (GSK), known for the toothpaste Sensodyne or the pain ointment Voltaren. It would have been the largest acquisition since the pandemic began and in Unilever’s history.

GSK takeover attempt was ‘near-death experience’

But the attempt failed. On the one hand, GSK rejected the offer as too low, on the other hand, the criticism from Unilever investors and analysts was unusually harsh: Bert Flossbach from the Cologne fund house Flossbach von Storch spoke out publicly against the takeover.

The British star fund manager Terry Smith even described the takeover attempt in a letter to his investors as a “near-death experience”. Management should improve the performance of the existing business before taking on new challenges. Smith’s word carries weight: he is considered the British Warren Buffett, holds around £800 million in Unilever shares through a fund and is one of the 15 largest investors.

He and other market observers justified their criticism with the fact that GSK mainly offers medical products that entail completely different regulatory hurdles than the Unilever portfolio. In addition, the price for the GSK division was too high, Unilever should have taken on too much debt.

Only when CEO Jope declared the takeover attempt a failure last Wednesday did the share price recover. The recent price jump shows that the shareholders are hoping for new growth from the entry of the hedge fund Trian. The sale of low-growth brands, as analysts have been recommending for some time, has become more likely after entry.

Investor Peltz is familiar with the consumer goods industry

The 79-year-old Peltz has proven many times that he can increase company value, said analyst Martin Deboo of the US investment bank Jefferies. The hedge fund has often achieved this through spin-offs. Deboo expects that the mood around Unilever is now brightening.

In fact, Peltz has worked for other consumer goods companies such as Procter & Gamble (P&G), Pepsico, Danone, Kraft Foods and Mondelez. His hedge fund Trian is known for providing operational advice to his holdings, presenting himself as a partner rather than an activist breaking up companies.

Nelson Peltz

His hedge fund Trian is known for providing operational advice to his holdings, presenting himself as a partner rather than an activist looking to break up companies.

(Photo: Bloomberg)

Around 2012 he helped the food manufacturer Danone to reduce its costs. In 2018, Peltz joined the board of directors of consumer goods giant P&G (Ariel, Pampers, Gillette). He helped Unilever simplify its structure and brand diversity. When he left the board in August 2021, P&G shares were up 85 percent and sales were up 15 percent.

In this way, he should now also start at Unilever. CEO Jope announced last week that he intends to present a new strategy this month. Unilever wants to focus more on the areas of health, beauty and hygiene because they promise higher and more sustainable growth.

Selling the grocery store?

At the same time, Jope plans to divest areas with lower growth. According to analysts, this could affect the food sector. For example, Unilever sells ice cream under the brands Ben & Jerry’s and Langnese or Hellmann’s mayonnaise.

Observers expect that Peltz should now force a separation of the grocery business from the household and personal care business at Unilever. They expect the ice cream brands to be sold or to exit the food segment altogether. Unilever boss Jope said last week that there were no plans to sell the entire food division. But the pressure from the new investor could lead to a rethink.

In the first nine months of last year, Unilever generated 41 percent of its group turnover of 39.3 billion pounds with cosmetics. A little less comes from the food sector. A fifth made Unilever with detergents.

More: Biggest deal since Corona: Why Unilever wants to pay more than 50 billion for a GSK division

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