It’s been a brutal few weeks for Unilever CEO Alan Jope. Following a battering from top investor Terry Smith to kick off 2022, and the humiliating climbdown in the GSK saga, a titan in the activist hedge fund world has plonked his tank on Unilever’s lawn.
Sluggish growth has left Unilever wide open to exactly this kind of approach, with Barclays’ Warren Ackerman noting Nelson Peltz had been discussed as a credible activist long before the Glaxo catastrophe.
Unilever shares fell 24% from highs of 5,190p in August 2019 to 3,945.5p at the end of 2021, with a painful corresponding £32bn decline in market cap as a result.
And with shares plummeting by another 11% last week as investors reacted with horror to the GSK tilt - Peltz’s Trian Partners has decided now is the time to give Unilever an almighty shake.
Reports in the Financial Times this weekend of his involvement had an immediate effect: shares have soared more than 7% to 3,942p today, erasing most of last week’s nightmare.
But who is Nelson Peltz and what does he want with Unilever?
The billionaire investor co-founded Trian Partners in 2005 but has been involved in the world of food and drink in one way or another since the 1960s.
Peltz’s appetite for the fight appears undiminished at the age of 79 despite a bruising encounter with P&G back in 2017, which involved the biggest proxy battle in corporate history.
The at times acrimonious fight with the Gillette, Pampers and Ariel owner lasted for months, with Peltz snatching victory from the jaws of defeat after a recount of votes to win his coveted seat on the board.
P&G’s shares increased more than 40% in value from the time Peltz took his seat in March 2018 to stepping down from the board in August 2021 as the company acceded to his demands to simplify its corporate structure. And the group is up more than 85% since 2018 to date beating the 65% rise in the wider S&P 500 index. Although, how much of the improvement at the group is down to Peltz’s influence rather than moves already being put in place by CEO David Taylor and his team is a subject of debate in investment circles.
Peltz was also instrumental in the break-up of Cadbury Schweppes in 2007 and the creation of Kraft Heinz and Mondelez. After selling off Snapple – which he bought via investment vehicle Triarc Companies in 1997 – to Cadbury Schweppes in 2000, he followed up in 2007 by pushing for the break-up of the group into separate confectionery and soft drinks businesses.
A controversial takeover of the nation’s favourite chocolate brand by US raiders Kraft Foods soon followed, with Kraft itself spinning out its confectionery and snacks brands with the creation of Mondelez in 2012.
However, Peltz hasn’t always had it all his own way, with PepsiCo boss Indra Nooyi fending off the activist in a two-year battle back in 2013 as Peltz attempted to coerce the group to split its drinks and snacks divisions to then merge the latter with Mondelez.
What does all this mean for Unilever?
Trian and Peltz’s campaign at P&G looks likely to provide the blueprint for what comes next at Unilever.
Despite the bitter proxy battle, Peltz built a successful and amicable working partnership with P&G boss David Taylor, who is quoted on Trian’s website in praise of his one-time adversary. “From day one, Nelson has been a focused, collaborative member of P&G’s board,” he says.
So, his involvement doesn’t necessarily spell curtains for Jope’s reign at Unilever, with Barclays’ Ackerman noting that Peltz tends to like to help from the inside, assisting current management by occupying a board seat rather than agitating for change from the outside.
Ironically, going back over Peltz’s mammoth 94-page document issued during the P&G proxy fight, it appears the veteran activist investor and Jope may have much in common. In it, Peltz criticised P&G for its outdated portfolio, arguing that millennials distrust big brands and are seeking out “purpose-led” alternatives.
His involvement in Unilever also doesn’t necessarily mean radical transformational change either, as Ackerman points out Peltz preferred to go for more operational and governance fixes at P&G.
“Whilst we don’t know (yet) what Trian’s agenda is for Unilever, we suspect it could involve increasing investments (possibly a margin reset) and spinning out its foods operations,” he says.
Jefferies analyst Martin Deboo thinks the long-mooted sale of the food business looks likely, particularly in the aftermath of the GSK bid.
Trian is likely to find a sympathetic audience in the form of Unilever’s disgruntled shareholders, he argues.
“This looks set to further increase the pressure on CEO Alan Jope and the board, who will need to reflect on how and why Unilever has attracted two external interventions in the past five years: a hostile approach from Kraft Heinz in February 2017 and now this.”
The ball is now in Unilever’s court, with the group promising to unveil “a major initiative” before the end of the month to enhance performance.
It may well be that Jope’s misreading of shareholder mood with the £50bn GSK bid is the catalyst Unilever has needed to kick-start a long-awaited turnaround. Whether Jope – and his lieutenants – will be around long enough to be a part of it remains to be seen.