Ticker Symbol: UL
Unilever shares were last trading up 9% in the noon trading session as investors cheered the addition of activist investor Nelson Peltz to the Board of Directors of the company as a non-executive director. Peltz’s fund, Trian Fund Management, now holds a 1.5% stake in the global manufacturing behemoth.
Given the positive changes the activist’s stakes have brough about in other competitors, such as Procter & Gamble and Snapple, investors are hoping that the addition of a strong independent voice could lead to changes at Unilever, which has businesses as varied as Hellmann’s mayonnaise, to Dove soap and Ben & Jerry’s ice cream.
Unilever has been involved in a lengthy and arduous reorganization of its business for the past few years. The company rejected a takeover bid by Warren Buffett and 3G Capital’s Kraft Heinz for the Anglo-Dutch company for $143 billion in 2017.
Then, in 2018, the company completed the sale of its spreads business to the private equity giant KKR for €6.825 billion, which many analysts at the time thought undervalued the business. Then, in 2020, the company decided to stick with the city of London and named it its sole headquarters, only two years after announcing that it would move to Rotterdam.
The company also lost its long-term CEO in the midst of these changes. Through these tumultuous times, the company’s share price has remained flat over the past 5 years, while the consumer staples sector is up over 50% in the same timeframe.
One of the main issues at the company is that despite numerous attempts, Unilever’s gross margin remains stuck at around 40%, while its closest peers Nestle and Procter & Gamble, have gross margins of 48% and 50%, respectively. Additionally, the company’s Food and Refreshments arm, long a high margin business, has recently been suffering from slower growth relative to the company’s other businesses.
Furthermore, Unilever has made three approaches in recent months to purchase GlaxoSmithKline’s consumer healthcare business for £50 billion. The deal, when it goes through, would pressure the company’s balance sheet further, and raise the potential for a capital raise, diluting existing shareholders.
Peltz’s addition to the Board could mean that Unilever would at least attempt to sell businesses to finance the GSK acquisition, instead of raising the gearing ratio at the firm. Investors could also be hoping that Train’s strategic expertise could assist Unilever in creating and setting an improved long-term strategic roadmap for the business.
This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.
