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Unilever to review business following Kraft Heinz bid

Unilever has promised to boost profits and conduct a root-and-branch review of its business that could lead to asset sales just days after an aborted $143bn takeover approach from Kraft Heinz, the US food group backed by 3G Capital and Warren Buffett.

Unilever is under pressure to speed up returns to shareholders following the bid from Kraft Heinz, which has raised questions about the consumer products group’s structure and profitability.

The Anglo-Dutch conglomerate said on Wednesday it would conduct “a comprehensive review of options available to accelerate delivery of value for the benefit of our shareholders”. Unilever said its review would be completed in early April.

In a second statement, delivered a few minutes after the first, Unilever said it would boost operating profit margins to meet “the upper end of its 40-80 basis points guidance”.

Previously, it had said the margin improvement would be at the lower end of the range. Unilever’s profit margins are half those of Kraft Heinz, suggesting that the business could be run more efficiently.

The group, which owns food businesses such as Magnum ice cream as well as home and personal-care brands including Dove soap and Surf laundry powder, acknowledged that it had been shaken into action by the tumultuous events of the past week.

On Friday, Kraft made public its $143bn approach, only to back off barely 48 hours later after encountering stiff opposition from Unilever chief executive Paul Polman and the company’s board as well as political resistance in the UK and the Netherlands.

Unilever conceded that the returns it has been promising in a three-year plan unveiled last year — including $1bn of savings — needed to be delivered more rapidly to shareholders.

“The events of the last week have highlighted the need to capture more quickly the value we see in Unilever,” it said.

Shares rose by 7 per cent on Wednesday afternoon, returning close to the level they hit following news of Kraft Heinz’s approach on Friday.

James Targett, analyst at Berenberg, said the Kraft approach could spur Unilever into radical steps such as selling off underperforming foods and refreshments businesses that include Hellmann’s dressings, Flora margarine and Lipton tea to fund a large acquisition in personal care.

Mr Polman has favoured small-scale acquisitions to push the group further into home and personal care, which now accounts for 57 per cent of sales.

The events of the last week have highlighted the need to capture more quickly the value we see in Unilever

“The problem is that these acquisitions are too small to move the needle,” said one person who knows the company well.

Unilever has been urged by some investors and analysts to use its strong balance sheet either to accelerate investments in the new acquisitions or buy back shares.

The company’s review of its business has also raised questions about its future management. Samuel Johar, chairman of corporate headhunter Buchanan Harvey, said: “We should give the board credit for acting so quickly. I’m sure one of the issues the board will be considering is the succession of the chief executive who has been there for eight years.”

Some analysts suggest that Kraft Heinz could still acquire at least some of the Unilever business. Jasper Lawler, analyst at London Capital Group, said: “A future Kraft takeover of part of the Unilever business, perhaps part of its foods division, is still possible.”

Via FT