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The company appears to have lost its way under the current CEO
Thursday 27 Jan 2022 Author: Ian Conway

Domestos to Marmite maker Unilever (ULVR) was the biggest riser on the FTSE 100 on 24 January, gaining 7% to £39.40 and in the process recouping all the ground the shares lost following the recent revelation of its failed bid for GlaxoSmithKline’s (GSK) consumer healthcare unit.

The catalyst for the sharp jump in the share price was an unconfirmed report that US activist Nelson Peltz had built a stake in the Anglo-Dutch group.

Peltz’s activist hedge fund Trian Partners has a history of shaking up underperforming consumer goods companies and has reportedly taken a significant holding in Unilever, which last week drew the ire of its shareholders after it bid for the Glaxo business.

FOX IN THE HENHOUSE

Unilever’s £50 billion offer was the latest of three approaches to the pharmaceutical giant, but shareholders were so vocal in their opposition management effectively gave up its pursuit by saying it wouldn’t increase its price.

Peltz’s arrival on the share register would heap further pressure on beleaguered chief executive Alan Jope, with Jefferies analyst Martin Deboo observing ‘the fox would now appear to be inside the henhouse’.

Trian has had a good deal of success in unlocking value by pressing for change at the likes of Mondelez, Sysco and Procter & Gamble, the US giant behind brands including Pampers nappies, Gillette razors and Oral-B dental floss, which is seen as a direct rival to Unilever.

Investors with a longer memory may recall Peltz was also instrumental in the break-up of former FTSE 100 darling Cadbury Schweppes, which resulted in Cadbury being acquired by Mondelez.

HUNTER TO BECOME THE HUNTED?

The mooted takeover of the Glaxo unit has raised fundamental questions among investors over Unilever’s strategic direction under chief executive Jope and the future of some of its assets.

Fundsmith founder Terry Smith, a long-standing core shareholder of Unilever, published what he called a post mortem on the proposed deal with Glaxo describing it as a ‘near death experience’ and advising management to either focus on the core business or step aside.

Smith previously argued Unilever’s management had ‘lost the plot’, with the FTSE 100 goliath ‘labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business’.

If Peltz intends to put pressure on Unilever to break itself up into a separate staples business and a household goods business to increase value he may well find support amongst disgruntled shareholders, at which point the company would likely become a target rather than an acquirer.

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