Hein Schumacher's first months as head of Unilever were marked by growing debate about the merits of breaking up the conglomerate. Photo: Friesland Campina/Unilever
Unilever's new CEO Hein Schumacher has only been under the table for about 100 days but is already under pressure.
After years of sluggish growth at Unilever, shareholders' patience is wearing thin. . The 52-year-old Dutchman is under fire to show he can reverse the trend.
Major shareholder Nick Train last week publicly called for signs of progress and warned the group risked breaking up if results were not delivered quickly. This has sparked renewed debate about the merits of splitting up the group.
«If you were to build Unilever from scratch today, you probably wouldn't come to this conclusion,» says Barclays analyst Warren Ackerman. «You won't see many companies with the same structure.»
Founded in 1929 through the merger of a Dutch margarine company and a British soap manufacturer, Unilever has grown through decades of acquisitions that have left it with what can be described as an eclectic portfolio.
Today it owns more than 400 brands . from Domestos bleach and Radox shower gel to Knorr, Marmite and Ben & Jerry's ice cream.
While its diversity has helped the company weather downturns in certain sectors, critics say it has left the group unfocused.
«Investors are saying they have one last chance, and I agree,» Ackerman says.
Unilever's main problem is that its brands are losing out to competitors. Only 38% of its global portfolio is gaining market share, when this figure should be closer to 50-60%.
Combined with an ESG focus that has allowed the company to try to define a «purpose» for each brand, the long-suffering shareholders are confused.
Terry Smith spoke for many when he said Unilever had «missed the point» by trying to «define the purpose of Hellman's mayonnaise.»
Schumacher sought to distract Unilever from its obsession with ESG, saying not all of its brands should have a mission statement.
Unilever has also split the sprawling empire into five clean and simple divisions, with separate profit and loss accounts.
This may make it ideal for breaking up with pieces of the business now easily divide.
Unilever recently dipped its toe into deal-making waters by selling most of its stake in Dollar Shave Club to a US private equity firm.
The obvious next step if Schumacher's plans fail would be to split up the ice cream division, which owns Wall's, Ben & Jerry and Magnum. According to investment bank RBC, the unit is worth around £13 billion.
The need to keep ice cream frozen requires a cold distribution network of refrigerated trucks and warehouses, making the division something of a mixed bag and most efficient. Most likely, he will be released.
However, Unilever's five divisions share R&D, marketing and HR functions, and there are tax incentives for combining them.
According to RBC, which conducted an internal assessment of each of the five divisions, there are no “hidden” divisions.
value» that could be realized.
«In the short term, I don't see any real added value,» says RBC Capital's James Edwards Jones, another veteran Unilever watcher. “There is no conglomerate discounting here.
“These decay-type arguments work best if the market underestimates the sum of the parts. When Cadbury Schweppes split up many years ago, it was clear that the sum of its parts could be worth more. I don't think that's the case here.”
Yet when Schumacher attends board meetings, he faces an imposing figure: billionaire Wall Street activist Nelson Peltz.
Peltz is a courageous businessman. a raider not known for his patience. He is also one of the top ten shareholders of his Trian fund and serves on the board of directors.
A veteran of the consumer products group, Peltz pushed for PepsiCo to break up. Until now he has been very shy at Unilever. Could he be sharpening an ax in the background?
Nelson Ploetz, the notorious corporate raider, has yet to show any appetite for the Unilever breakup. Photo: Mike Blake/Reuters
“I don’t understand the activist pushing for a break,” Ackerman says. “I think they just want them to stop doing mergers and acquisitions and focus on the day-to-day work of developing great innovations and things that consumers want to buy. I don't agree with the activist saying, 'You have six months or we'll break up.'»
Schumacher is coy about discussing the issue for now, but that's likely to be the elephant in the room as he tours City.
The father of three has been working hard to reset the firm's relationship with City, meeting with analysts and shareholders in recent weeks.
“People want him to like him, but it often takes a little longer than you think,” says one financial manager who has been the target of a charm attack. “The jury is still out, but people are starting to be more positive. It's not a hopeless case, but there are a few things that need to be done first.»
RBC's Edwards Jones said Schumacher is offering the city a «realistic» assessment of Unilever.
» He seems very reasonable. My best hope for him being an outsider is that he will not get caught up in Unilever's political machinations, will remain himself and run the company without fear or favor.”
Schumacher tried to do this. Draw the line when it comes to breakup talk and plan to spend more money promoting big brands such as Marmite and Dove Soap in an attempt to increase sales.
How profitable this strategy will be is an open question. In the meantime, the clock is ticking.
Ackerman says: «They have an 18-month window to improve performance, and if that doesn't happen, they will have to look for alternatives.»
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