At Unilever, Activist Investor Nelson Peltz Faces Tricky Task to Reinvigorate Growth
Unilever PLC
UL -4.57%
has for years wrestled with the best way to run its ice cream-to-shampoo empire. Now it is set to get some fresh inspiration from activist investor
Nelson Peltz.
Mr. Peltz, who gained a board seat at Unilever after his Trian Fund Management LP amassed a 1.5% stake in the maker of Ben & Jerry’s ice cream, has a strong record in the consumer-goods industry. Still, reinvigorating Unilever could prove tricky. The company houses a more diverse range of brands than its rivals and has greater exposure to emerging markets that have been disproportionately whacked by the pandemic and, more recently, surging inflation.
Mr. Peltz’s arrival comes as Unilever is under pressure to boost growth. Unilever’s shares have underperformed rivals
Nestle SA
and
Procter & Gamble Co.
—on whose board Mr. Peltz previously served—in recent years. Meantime, supply-chain woes are vexing the whole industry and Unilever says rampant cost inflation has hit particularly hard the commodities it relies on.
The company has already started an overhaul of its sprawling operations that Chief Executive
Alan Jope
says will allow it to be more responsive to trends, and more accountable. The restructuring will scrap a matrix organization, under which Unilever had 250 country-category business teams and three main categories, in favor of five category-focused divisions that have full responsibility for their profits and strategy.
When Mr. Peltz served on P&G’s board, he took aim at its matrix structure and the Tide maker eventually scrapped it. With Unilever’s reorganization already under way, it expects to work with the investor rather than against him, a person familiar with the company’s thinking said.
Mr. Peltz said Tuesday that Unilever had “significant potential” but Trian declined to comment further on its investment.
For Unilever, the latest restructuring plan unwinds an earlier overhaul that pushed more decision-making to local executives, giving them greater say over how and when to launch new products.
At the time, Unilever was in the crosshairs of a proliferating array of scrappy, local competitors who were taking market share across categories from ice cream to body lotion. In a matter of months, Unilever’s brand teams launched products to cater to local preferences—like a personal-care line called Hijab Fresh for hijab-wearing women in Indonesia—and to tackle new threats from local rivals like an ayurvedic line of personal care products in India.
More recently, Unilever’s diverse products and markets have been cited by analysts as one of the reasons why the company has underperformed through the pandemic.
While P&G and Nestlé benefited from U.S. consumers stocking up on household staples like cooking ingredients and cleaners, Unilever’s U.S. results were hit by a slump in out-of-home ice cream sales and weaker demand for food ingredients from restaurants.
Unilever’s larger footprint in emerging economies—long a source of strength—turned into a thorn, as strict lockdowns in major markets like India and China dented sales.
Even before the pandemic hit, though, Unilever was struggling against a resurgent P&G in the U.S. and an economic slowdown in India, its two largest markets.
For years, Unilever has had to perform a tricky balancing act that many of its rivals don’t, ascertaining how to allocate resources in a way that drives its big brands without ignoring local tastes.
At P&G, Mr. Peltz called for the company to focus less on big brands like Tide and Pampers and more on niche names with youth appeal. But Unilever executives have recently indicated that the company will focus more on its biggest brands and worry less about local rivals.
Unilever has also said it plans to boost growth by rotating the company’s portfolio into faster-growing areas like health, beauty and hygiene.
Unilever earlier this year disclosed it had made an unsuccessful bid to buy
GSK PLC’s
consumer-healthcare business for $68 billion, a deal that would have boosted its presence in oral care and vitamins. However, the move angered some investors, who said Unilever should focus on growing its existing brands and divesting slower-growing ones.
At that time, Unilever said any major acquisition would likely be accompanied by big divestitures, perhaps of its food businesses, which include Hellmann’s mayonnaise and Knorr bouillon cubes. Unilever has since said it sees a bright future for these brands within the company.
With Mr. Peltz on board, analysts expect Unilever’s pace of change to accelerate. Some of the areas they hope will be addressed include Unilever’s margin target—seen as too high—a lack of big innovation, and acquisitions of U.S. brands that years on have yet to be rolled out globally.
However, Unilever doesn’t expect the arrival of Mr. Peltz to spur any major acquisition or disposals soon, according to people familiar with the company’s thinking.
Executives have said that a disposal of Unilever’s food businesses, for instance, would undo major synergies, meaning the company would need to look for another large deal to make up for the loss.
Mr. Peltz, who is set to join Unilever’s compensation committee, could look to instigate changes to executive pay, analysts say. Bernstein analyst Bruno Monteyne said long-term incentives should be tied to sales growth.
While Mr. Peltz was on its board, P&G scrapped an executive-compensation structure seen as failing to properly motivate leaders and hold them to account.
Another area where Mr. Peltz could look to exert influence is Ben & Jerry’s. After the brand said last year it would end sales in the Israeli-occupied West Bank, Mr. Peltz met Mr. Jope at the request of Israel’s government, according to a person familiar with the matter. The investor told the chief executive that no company should make political statements, the person added.
Mr. Jope has so far said his hands are largely tied by an acquisition agreement under which Unilever agreed to allow Ben & Jerry’s board to decide its own social mission.
Write to Saabira Chaudhuri at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Unilever PLC
UL -4.57%
has for years wrestled with the best way to run its ice cream-to-shampoo empire. Now it is set to get some fresh inspiration from activist investor
Nelson Peltz.
Mr. Peltz, who gained a board seat at Unilever after his Trian Fund Management LP amassed a 1.5% stake in the maker of Ben & Jerry’s ice cream, has a strong record in the consumer-goods industry. Still, reinvigorating Unilever could prove tricky. The company houses a more diverse range of brands than its rivals and has greater exposure to emerging markets that have been disproportionately whacked by the pandemic and, more recently, surging inflation.
Mr. Peltz’s arrival comes as Unilever is under pressure to boost growth. Unilever’s shares have underperformed rivals
Nestle SA
and
Procter & Gamble Co.
—on whose board Mr. Peltz previously served—in recent years. Meantime, supply-chain woes are vexing the whole industry and Unilever says rampant cost inflation has hit particularly hard the commodities it relies on.
The company has already started an overhaul of its sprawling operations that Chief Executive
Alan Jope
says will allow it to be more responsive to trends, and more accountable. The restructuring will scrap a matrix organization, under which Unilever had 250 country-category business teams and three main categories, in favor of five category-focused divisions that have full responsibility for their profits and strategy.
When Mr. Peltz served on P&G’s board, he took aim at its matrix structure and the Tide maker eventually scrapped it. With Unilever’s reorganization already under way, it expects to work with the investor rather than against him, a person familiar with the company’s thinking said.
Mr. Peltz said Tuesday that Unilever had “significant potential” but Trian declined to comment further on its investment.
For Unilever, the latest restructuring plan unwinds an earlier overhaul that pushed more decision-making to local executives, giving them greater say over how and when to launch new products.
At the time, Unilever was in the crosshairs of a proliferating array of scrappy, local competitors who were taking market share across categories from ice cream to body lotion. In a matter of months, Unilever’s brand teams launched products to cater to local preferences—like a personal-care line called Hijab Fresh for hijab-wearing women in Indonesia—and to tackle new threats from local rivals like an ayurvedic line of personal care products in India.
More recently, Unilever’s diverse products and markets have been cited by analysts as one of the reasons why the company has underperformed through the pandemic.
While P&G and Nestlé benefited from U.S. consumers stocking up on household staples like cooking ingredients and cleaners, Unilever’s U.S. results were hit by a slump in out-of-home ice cream sales and weaker demand for food ingredients from restaurants.
Unilever’s larger footprint in emerging economies—long a source of strength—turned into a thorn, as strict lockdowns in major markets like India and China dented sales.
Even before the pandemic hit, though, Unilever was struggling against a resurgent P&G in the U.S. and an economic slowdown in India, its two largest markets.
For years, Unilever has had to perform a tricky balancing act that many of its rivals don’t, ascertaining how to allocate resources in a way that drives its big brands without ignoring local tastes.
At P&G, Mr. Peltz called for the company to focus less on big brands like Tide and Pampers and more on niche names with youth appeal. But Unilever executives have recently indicated that the company will focus more on its biggest brands and worry less about local rivals.
Unilever has also said it plans to boost growth by rotating the company’s portfolio into faster-growing areas like health, beauty and hygiene.
Unilever earlier this year disclosed it had made an unsuccessful bid to buy
GSK PLC’s
consumer-healthcare business for $68 billion, a deal that would have boosted its presence in oral care and vitamins. However, the move angered some investors, who said Unilever should focus on growing its existing brands and divesting slower-growing ones.
At that time, Unilever said any major acquisition would likely be accompanied by big divestitures, perhaps of its food businesses, which include Hellmann’s mayonnaise and Knorr bouillon cubes. Unilever has since said it sees a bright future for these brands within the company.
With Mr. Peltz on board, analysts expect Unilever’s pace of change to accelerate. Some of the areas they hope will be addressed include Unilever’s margin target—seen as too high—a lack of big innovation, and acquisitions of U.S. brands that years on have yet to be rolled out globally.
However, Unilever doesn’t expect the arrival of Mr. Peltz to spur any major acquisition or disposals soon, according to people familiar with the company’s thinking.
Executives have said that a disposal of Unilever’s food businesses, for instance, would undo major synergies, meaning the company would need to look for another large deal to make up for the loss.
Mr. Peltz, who is set to join Unilever’s compensation committee, could look to instigate changes to executive pay, analysts say. Bernstein analyst Bruno Monteyne said long-term incentives should be tied to sales growth.
While Mr. Peltz was on its board, P&G scrapped an executive-compensation structure seen as failing to properly motivate leaders and hold them to account.
Another area where Mr. Peltz could look to exert influence is Ben & Jerry’s. After the brand said last year it would end sales in the Israeli-occupied West Bank, Mr. Peltz met Mr. Jope at the request of Israel’s government, according to a person familiar with the matter. The investor told the chief executive that no company should make political statements, the person added.
Mr. Jope has so far said his hands are largely tied by an acquisition agreement under which Unilever agreed to allow Ben & Jerry’s board to decide its own social mission.
Write to Saabira Chaudhuri at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8