Hein Schumacher’s charm offensive and change in tone masks corporate uncertainty
Hein Schumacher, the new Unilever CEO, has been at his desk for only about 100 days. But already he’s under pressure.
Unilever shareholders are losing patience after years of slow growth. The 52-year-old Dutchman is under pressure to prove he can turn the trend around.
Nick Train, a top shareholder of the group, warned last week that if there were no signs of progress in a short time frame then it was possible for the group to break up. This has led to a new debate on the merits and benefits of breaking up the group.
Warren Ackerman, Barclays analyst: “If you were to create Unilever today from scratch, you would probably not come up with the same structure.” “You don’t find many companies with a similar structure.”
Unilever was formed in 1929 by the merger of two Dutch margarine companies and a British soap manufacturer. It has since grown through acquisitions over decades, leaving it with a portfolio that can be charitably described as eclectic.
It owns more than 400 brands, from Domestos bleach to Radox shower gel and Ben & Jerry ice cream.
While the group’s diversity has allowed it to weather downturns, critics claim that it has left it unfocused.
Ackerman agrees that investors believe they have a last chance to invest.
Unilever’s biggest problem is that it’s brands are losing market share to competitors. The global portfolio of Unilever is only winning 38pc market share, when it should be closer to 50%-60pc.
Unilever’s slow growth over the years
Shareholders are frustrated by the company’s focus on ESG and its attempt to define a purpose for each brand.
Terry Smith, who spoke on behalf of many, said Unilever “lost its plot” when it tried to “define Hellmann’s Mayonnaise”.
Schumacher is trying to get Unilever to stop being obsessed with ESG. He says it’s not right for all of its brands to have mission statements.
Unilever also organized the vast empire into five simple, clean divisions that have individual profit and losses accounts.
It is now a perfect candidate for a split-up. The business can be easily divided up.
Unilever has recently dabbled in the dealmaking waters by selling the majority of its Dollar Shave Club holding to a US-based private equity firm.
If Schumacher’s plans fail, the obvious next step would be to demerge the ice-cream division, which includes Wall’s, Ben & Jerry’s, and Magnum. According to RBC, the division has a value of about £13bn.
It is necessary to maintain ice cream at a frozen state. This requires a cold chain of trucks and warehouses.
The five Unilever divisions do share R&D and marketing functions, and they can benefit from tax incentives by remaining together.
RBC has a value for each of these five, and there is no hidden value that could be realized.
James Edwardes Jones of RBC Capital, a veteran Unilever observer, says: “In the short-term, I do not see any real value that can be added.” There is no conglomerate discounts here.
These arguments for breakups work best when the market undervalues the sum of all the parts. It was obvious that Cadbury Schweppes could have been worth more when it broke up many years ago. “I don’t believe that’s the situation here.”
When Schumacher attends meetings, he is greeted by a imposing figure – billionaire Wall Street activists Nelson Peltz.
Peltz, a corporate raider who is not known for patience, is a swashbuckling rogue. Peltz is also one of the top ten shareholders through his Trian Fund and sits on its board.
Peltz, a veteran consumer goods company, pushed for the breakup of PepsiCo. He has been a bit cautious at Unilever. Could he sharpen the axe behind him?
Ackerman says, “I do not get the impression that the activist is pushing a breakup.” “I believe they want them to focus on their day-to-day work – developing superior innovations and products that consumers will want to purchase – and stop doing M&A. I don’t think the activist is saying that you have six months to get it right or we will break it up.
Schumacher is yet to address the issue. However, it will be the elephant of the room as he tours New York City.
Over the last few weeks, the father of three worked hard to reset his firm’s relationship with the City. He met with analysts and investors.
One money manager, who was targeted by the charm offensive, says: “People want him to be liked. But these things can take longer than you think.” The jury is still out, but the mood of people has changed. It’s not a disaster but it has to get a few things done first.
Edwardes Jones, RBC, said Schumacher had provided the City with a “realistic assessment” of Unilever.
“He seems to be very rational.” “My big hope is that as an outsider, he does not get caught up in the political machinations at Unilever. He will remain his own person to manage the company without fear or favor.”
Schumacher is trying to put a stop to the breakup talk. He plans to spend money on promoting Marmite, Dove Soap and other big brands to increase sales.
Uncertainty surrounds the profitability of this strategy. The clock is ticking.
Ackerman states: “They have 18 months to improve their performance, and if this does not occur they will be forced to consider alternatives.”