Breakup of Unilever will only be likely if activist investor emerges, according to Liberum analysts; split would boost company's value
December 4, 2013
– Unilever's combination of food brands like Bovril and PG Tips alongside soaps and detergents is increasingly being questioned by the City.
But it may take an activist investor to push through any breakup of its food and home and personal products divisions, according to analysts at Liberum.
The broker said a split would boost Unilever's value, and its current piecemeal disposal programme was not enough. Analyst Pablo Zuanic said:
But at this rate it might take a shareholder activist for value to be unleashed. Nelson Peltz forced Cadbury to sell its drinks business and by taking a stake in Danone induced the company to be more aggressive about cost cuts (despite Danone apparently not taking his calls). Bill Ackman with only a 1% stake in Proctor and Gamble ended up forcing a chief executive change, and prior to that forced Fortune Brands to break (Beam being one of the prized assets). Activists forced Kraft and Sara Lee both to break up.
Given the hidden value in Unilever, we would expect activists to at some point start taking positions in Unilever. We would advocate selling all the food lines and only keeping ice cream.
Buyers? Bunge and the various European dairy companies (Lactalis, Sodiaal, Parmalat) could bite on spreads; McCormick, Campbell's, Heinz [now owned by Warren Buffett and private equity group 3G] could be interested in the soups, table sauces, and cooking sauces businesses, besides private equity (Blackstone's Pinnacle is on the prowl, and so is Permira apparently). Surely 3G will not stop at Heinz.
Last week Unilever chief executive Paul Polman repeated that Unilever had seen a slowdown in emerging markets, and said the decline was likely to last for years. Ahead of an investor day on Thursday, Liberum's Zuanic said:
Management should focus more on the micro (market share trends) than on heralding the macro (we know markets have slowed). The company's growth has decelerated in emerging markets more than at peers; it is losing share in North America in home and personal care; the turnaround efforts in food seem half hearted to us: telling consumers to use mayo to cook and bake? launching Lipton Green tea ten years after the green tea boom started in the west? trying to, perhaps quixotically, advice consumers about the health advantages of margarine.
To some extent these half-hearted efforts could mean long term these businesses are really for sale. We interpret this more as a sign that these businesses could be better managed by other companies (see the excellent work Dairy Crest has done in spreads, for example).
We do not need Unilever to remind us emerging markets have slowed (particularly when the degree of that slowdown can be debated), what we need is visibility on how the company will gain share there. We shall see if these questions are tackled at Thursday's annual investor seminar (and see if fourth quarter 2013 guidance for top line improvement versus the third quarter is maintained or withdrawn).
At the seminar we would also like to hear about large scale food divestitures, but without a Peltz or an Ackman this is unlikely. We keep the buy stance on valuation (it is the worst performing stock year to date in our coverage together with Danone and Remy) but recognize more radical hands-on action will be needed for the stock to reach our price target of €35 by December 2014.
In the market Unilever is 15p higher at £24.33 (with the euro quote up 0.5% to €28.7).
(c) 2013 Guardian Newspapers Limited.