Investors get itchy on ESG; Unilever gets hot & sweaty over GSK. Is another bid for bubbling?

Unilever is not currently a stock market darling.

In 2021 its shares fell 9% whilst the broader London market rose 11%. Compared to peers like Nestlé and J&J, Unilever’s stock price has underperformed significantly.

For two consecutive years its pre-tax profits have fallen, Unilever also missed another key goal: 3-5% sales growth.

There are growing signs that Management has lost the confidence of institutional investors.

Earlier this month, Fundsmith a large institutional investor, proclaimed Unilever’s management is “obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.”

Fundsmith went on, “a company which feels it has to define the purpose of Hellmann’s mayonnaise has, in our view, clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert – salads and sandwiches).”

Ouch!

No sooner had these revelations worked their way through the news cycle, another bombshell dropped: Unilever has made 3 bids for GSK’s consumer health unit. All were rejected.

Besides international reach, which is one of Unilever’s core strengths, it’s not obvious what the benefits of a Unilever takeover would be. How much does the company know about Consumer Health Care (CHC) business? For most Pharmas the CHC business is complimentary and a key feature is the ability to switch prescription (aka ‘Rx’) drugs, which have gone off patent into a top selling consumer product. How Unilever, which lacks Rx, would access this is unclear.

Photo: The Grocer

GSK coincidentally is also suffering the ‘ugly duckling’ treatment from investors. It’s only because of shareholder angst that the de-merger of its CHC business is on the table.

Unilever, which usually is not publicity shy, clearly wanted to keep news of its advances towards GSK under wraps. One reason is investor reaction was unfavourable. (How will they pay for the acquisition? and other questions), another more serious is that Unilever’s overtures are likely to attract attention from other bidders, think Nestlé or perhaps Reckitt?

Just a few days after the news broke, Unilever announced a u-turn. It would not be upping its bid for GSK.

Neither ESG nor a big acquisition will save Unilever’s current woes. Its management has to stay focused on driving top line sales growth and portfolio mix. Failure to achieve will attract unwelcome attention from predatory investors.

Danone’s CEO was ousted last year for this very reason.

Takeover talk is bubbling again now. Kraft Heinz’s 2017 bid for Unilever was rebuffed, incidentally their opening offer was £143bn, currently Unilever’s market cap is £128bn. In the eyes of investors, the business has gone backwards.

It is ironical that whilst Unilever and its executives are generally highly regarded within the consumer products industry, the investor community are not on the same page.

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