Unilever rejig could have room to run
19 JUN 2018
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Drastic times call for drastic measures. Unilever’s [AMS:UNA] plan to exit its dual London and Amsterdam listing in favour of a sole Dutch listing is one of many attempts to placate shareholders after rejecting a EUR 42 per share offer from Kraft-Heinz [NYSE:KHC] in February 2017.
It could also herald an even more drastic change: perhaps a wider break-up of the food and personal care specialist.
This is the carrot being dangled to shareholders, at least according to an investor presentation delivered by Unilever finance officer Graeme Pitkethly on 14 June. The company's ability to execute demergers was highlighted in the presentation as among the key motivations behind the complex unwinding of Unilever’s dual-listed structure across the UK and the Netherlands.
Demerger talk is not new at Unilever, but pressure could be growing for a more radical reorganisation.
As soon as Kraft made its bid for the consumer behemoth, management announced a review of the business which included the possibility of a break-up. Disposing of its Flora spreads business, which allowed a EUR 6bn return of value to shareholders via a share buy-back, looked radical enough to win the backing of shareholders disappointed with management’s opposition to Kraft’s bid.
Unilever looked at a spin-off of Flora but rejected the option in favour of an outright sale. So, it’s worth asking whether there is room to run on Unilever’s rationalisation programme.
Food and Drink revenue at Unilever totalled EUR 22bn in 2017, while Home Care and Personal Care generated sales of EUR 30bn. Both are easily large enough to operate standalone.
Shares in Unilever, at EUR 46.55, are above Kraft’s offer, but investors don’t seem entirely happy about the progress delivered since the bid. Around 30% of investors voted against Unilever’s remuneration policy in a May AGM.
This should all make Unilever’s management team and board take note. The key question Pitkethly’s investor presentation raises is - will Unilever’s rationalisation process end with its exit from London, or is this just the next step ahead of a more far-reaching outcome?