Unilever ‘pressure intensifies as activist investor Trian Partners joins party’

Trian Partners, an activist investor in New York, has reportedly acquired a stake in Unilever, which is grappling with the fall-out of a failed bid for GlaxoSmithKline’s consumer health business.

Outlets including Reuters and CNBC, citing unnamed sources, said Trian, led by billionaire businessman Nelson Peltz, has built a stake in the London-listed FMCG giant. The Financial Times, which first reported the development, noted its sources had not provided the size of the investment nor when it began. The Wall Street Journal, however, said Trian started buying Unilever shares ‘well before’ the GSK bid.

Unilever revealed last week it would not increase its GBP50bn (US$67.7bn) offer for GSK’s consumer health business, a bid the target company said was undervalued.

 

Sections of the investor community were critical of Unilever’s interest in the GSK assets. There has also been debate over Unilever’s new “strategic direction”, in which the group wants to “materially” expanding the company’s presence in health, beauty and hygiene.

While the GSK bid stalled, there has been speculation Unilever may still pursue acquisitions in the target areas, which may come at the expense of offloading some parts of the foods and refreshment division to raise appropriate funds.

Jope explained last week: “The primary criteria for disposals would be the long-term, intrinsic growth rate of the business. We have an excellent foods and refreshment business with global, leading positions. You will have noticed that it’s performed well during the pandemic but it is true that foods and refreshment’s long-term growth profile has been below other parts of the portfolio.”

He added: “What we’re trying to land today is the setting out of our future strategic direction into health, beauty, and hygiene. We have no immediate plans to separate F and R [foods and refreshment] but rotation of our portfolio is part of upgrading into higher-growth spaces.”

Martin Deboo, an analyst at investment bank Jefferies, wrote in a follow-up note yesterday (23 January) Trian is known for building stakes in businesses in the region of 1-3.5%, noting the investor’s previous involvement in Cadbury, Kraft Heinz, PepsiCo, and more recently consumer goods firm Procter & Gamble (P&G).

Deboo said Jefferies anticipates “a positive share price reaction and a further upping of the temperature in the market debate on Unilever, where we expect Trian to argue for a foods and HPC split, in line with our core thesis”.

He added: “Trian has a long and successful track record of unlocking value. This has frequently centred on splits and spin-outs. Its one previous involvement in UK staples, with Cadbury plc in 2007, prompted a split into confectionery and soft drinks and concluded with a listing of soft drinks and an eventual take-out of confectionery by Kraft. Trian then argued successfully for splitting Kraft into Kraft Heinz and Mondelez.

“At P&G, Trian didn’t argue for a split, but instead for organisational change and performance improvement, centred on a lively proxy fight for a board position. This was successful and resulted, ironically, in a notably constructive partnership between Peltz and then P&G CEO David Taylor. However at PepsiCo, Trian was unsuccessful in its fight to engineer a split between drinks and snacks.”

Terry Smith, the CEO and co-founder of London-headquartered Fundsmith Equity, has upped the ante against Unilever having previously claimed the FMCG heavyweight had “lost the plot”, jumping on Hellmann’s as a case in point, describing Unilever as “labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials”.

On Friday, he weighed into Unilever’s management again, arguing Unilever’s management should focus on improving the performance of its current business “before taking on any more challenges”.

Smith added: “Unilever’s performance has been poor. It is the worst performer by a considerable margin amongst the multinational FMCG companies we have owned and not just in terms of share price but also in terms of sales growth.

“The company would have us ignore this long-term underwhelming performance and talks about sales growth for the nine months ended September 2021 being their fastest for eight years. The irony is that foods and refreshment, the business they planned to sell if they were to buy GSK Consumer, outperformed the rest of the business, the one they wanted to materially expand, two to one.”

“Apart from observing that one swallow doesn’t make a summer and a few quarters of growth do not amount to a satisfactory track record, we would also suggest that Unilever shouldn’t seek long-term shareholders if it doesn’t want them to judge its long-term performance.”

Smith continued: “Five years ago, Kraft Heinz bid $50 (GBP36.50) per share for Unilever. Whilst we have never been Kraft Heinz shareholders and are not fans of their business model, Unilever surely needs to address the fact that five years later the share price is only at the level of that bid. The annualised return on the MSCI World Index over the same period is 12.5%. Why then should we trust this management and board with preserving value for shareholders?”

Deboo claimed on Sunday Trian may push for disposals in foods and refreshment.

“We have long been of the view that the right path to unlock value at Unilever is via a faster rate of disposals from its slow-growing foods businesses, or a separation between foods & HPC, via a sale or spin,” Deboo said. “We think that Trian might take a similar view. Particularly as Unilever’s recent further de-rating, in the aftermath of the GSK bid, has widened the potential gap between a holistic and sum-of-the-parts valuation.”

Funds for capacity and new labelling rules in US bid to shake-up meat industry

President Biden’s plans have sparked criticism from US meat processors.

 

The US government has said it is to spend US$1bn on meat processing and issue new rules on labelling as part of moves to create “a more competitive and more resilient” supply chain.

President Biden yesterday (3 January) provided more details on his administration’s plans to shake up the country’s meat sector, an industry he believes is too concentrated to the detriment of farmers and consumers.

The announcement, which also includes funds for R&D and lower inspection costs for small processors, follows the Biden administration’s arguments in recent months the US meat industry is not as competitive as it should be and has been a notable factor in rising food prices in the country.

It also comes six months after the US government outlined measures – including more than $600m of funding for processing capacity – to invest in production and “revitalise” trading rules.

Meat industry associations questioned the new announcement. Mike Brown, president of the National Chicken Council, said: “While we haven’t seen any proposals, for the chicken industry, this looks like a solution in search of a problem.”

In a lengthy statement ahead of a virtual meeting between Biden and farmers, ranchers and what the White House called “independent processors”, the administration set out plans for “a more competitive, fair, resilient meat and poultry sector, with better earnings for producers and more choices and affordable prices for consumers”.

Biden’s team has consistently pointed to the market share of the country’s largest processors, citing, for example, the 85% of the beef market divided among four companies.

The White House believes competition needs to be increased and, through the US Department of Agriculture, grants totalling $375m will be made available to build capacity.

Access to credit will be improved through a $275m scheme for independent processors while there will also be USDA funds for innovation “to help independent business owners” and reduced inspection costs for smaller plants.

On labelling, Biden wants to bring in new “Product of USA” rules. Under current regulations, meat can be labelled Product of USA “if it is only processed here – including when meat is raised overseas and then merely processed into cuts of meat here”, the statement read. “We believe this could make it hard for American consumers to know what they are getting. USDA has already begun its top-to-bottom review of the current labelling rules and consumers’ understanding of the labels, with the goal of new rulemaking to clarify Product of USA standards.”

The USDA will also work with the US Department of Justice to set up a way “for farmers and ranchers to report complaints of potentially unfair and anticompetitive practices in the agricultural sector to them”.

In July, the administration said it would look to strengthen the country’s Packers and Stockyards Act, a law passed a century ago to protect farmers from unfair trading practices. The USDA has started work on three proposed rules to “provide greater clarity and strengthen enforcement under the Act”, the statement added.

At the National Chicken Council, Brown said the White House was using the meat industry “as a scapegoat for the significant challenges facing our economy”.

He added: “This administration should be looking at the chicken industry as a model of success, instead of creating a boogeyman to justify an unnecessary and expensive foray into our meat supply.

“The chicken industry is the least consolidated in all of animal agriculture and the market share of the top four companies has been virtually the same for the past 20 years.”

A spokesperson for trade body The North American Meat Institute said: “The market has already begun to balance itself. All of the government spending announced again today is too late for consumers and producers. According to USDA data, cattle producers are getting the highest prices on record since [the] record prices they received in 2014. This is because packers have begun to clear the backlog of cattle created by the pandemic. The herd size is shrinking while demand remains high.

“Labour remains the biggest challenge. Our members of all sizes cannot operate at capacity because they struggle to employ a long-term stable workforce. New capacity and expanded capacity created by the government will have the same problem.”

She added: “There are many questions and few details about this government intervention in the market: How much extra capacity does the Administration think is needed? How high should cattle prices be right now? How long will the government-sponsored processors receive government money? How much will the government-sponsored processors be required to pay employees? “

On the plans to change labelling regulations, Brown said US rules “already require that chicken sold at retail clearly and accurately identify the product’s country of origin”.
He said: “Consumers seeking USA chicken can already find the ‘Hatched, Raised & Harvested in the U.S.’ label on American chicken. More than 99% of the chicken we consume is of domestic origin and can easily be identified. We hope that this trusted and accurate label is not diminished for the American consumer.”

French group Le Duff seals deal for Frial ready-meals business

Le Duff already owns the Cité Gourmande ready-meals business producing brands such as Yummy.

 

Restaurant and bakery firm Le Duff has completed the acquisition of Frial, strengthening the French group’s position in frozen ready meals.

Le Duff, which has a presence in ready meals through its Cité Gourmande business, previously said it was in discussions with US-headquartered investment company Ares Management Corp. to purchase Normandy-based Frial. The deal was confirmed in a statement on 30 December, with no financial details provided.

Ares bought Frial in 2019. The French company was founded in 1980 in the Normandy commune of Bayeux and supplies branded frozen ready meals to the retail channel and also to foodservice. It also produces frozen seafood products.

Frial operates three Normandy manufacturing sites located in Bayeux, Mont-Saint-Michel and Falaise. It had a turnover in 2020 of EUR182m (US$205.6m).

Le Duff, which said it made a turnover of EUR2bn in 2019, noted the Frial acquisition “continues its strong international growth, opening the way to new outlets, particularly in North America and Asia”.

Cité Gourmande supplies the retail brands Pom Bistro and the organic meal range Yummy. The company also operates the Bridor bakery business and Brioche Dorée bakery shops.

Founder and chairman Louis Le Duff reiterated comments in the latest statement to those he made previously: “Since the beginning of the Group’s adventure, we have not ceased to transmit our passion to the four corners of the world, always with an unwavering attachment to quality and health on the plate.

“Yesterday like today, innovating remains the watchword. 50% of the products in our freezer did not exist ten years ago. It is therefore necessary to know how to grasp the evolutions of society and the new needs of consumers. This is what we are doing with the acquisition of Frial, a perfect example of success and made in France know-how.”

Jean-Marie Piranda, the president of Frial, said: “For more than 30 years, the Le Duff Group has chosen to ‘produce in France’ and the history of Frial is deeply rooted in Normandy. Leading this development project with an independent and essential French industrial player, with whom we share many values, is a source of great pride for us.”

35 YEARS OF SPACE IN 2022